BNR: "The growth rate of Romania's economy moderated in 2023, but remained solid from a European perspective"

In 2023, Romania's economy recorded a moderation in the growth rate, to 2.1%, which however remained relatively solid from a European and regional perspective. The twin deficits remained at high levels, while the annual inflation rate evolved on an alert downward trajectory, according to the Annual Report of the National Bank of Romania for 2023.

According to the document, unlike previous years, when the most consistent contribution to economic growth came from private consumption, in 2023 it was clearly overtaken by gross fixed capital formation. "The intensification of capital accumulation was determined by public investments, to a large extent due to substantial European funds intended for engineering construction works. Private investments, although they had positive dynamics, registered a loss of speed compared to the previous year, in the context of the still high level of inflation and the restrictive profile of credit conditions. These two factors also acted in the sense of limiting the population's consumption, its 3.1% increase being supported by the sharp increase in real wage incomes, by some governmental consumer protection measures, as well as by the population's adoption of some strategies aimed at to ensure a relative stability of the volume of goods purchases, in an inflationary economic context", the report states.

For the first time in the last ten years, net external demand for goods and services also contributed to GDP growth (0.1 percentage points), as a result of a wider restriction of the volume of goods imports compared to that recorded by exports of goods (-2.6%, respectively -1.2%).

"In the conditions of the mitigation of the goods balance imbalance by three billion euros, the current account deficit recorded a notable reduction in 2023, reaching 7% of GDP, from 9.2% of GDP in the previous year", according to the report. Regarding the fiscal position, Romania remains the subject of the excessive deficit procedure started in 2020, with the general consolidated budget deficit already exceeding the ceiling of 3% of GDP provided for in the Stability and Growth Pact in 2019.

"In 2023, there was a considerable deviation from the objective of 4.4% of GDP from the 2023-2026 Convergence Program, the fiscal deficit measured according to the SEC 2010 methodology reaching 6.6% of GDP, a level of 0.3 percentage points above that of 2022. According to the European Commission's evaluations, this evolution reflects, along with a worsening of cyclical conditions, a marginal deterioration of the structural component of the budget deficit", the BNR mentions in the report.

• "The annual dynamics of inflation for the electricity and natural gas group reached -8.1% at the end of last year"

The annual Consumer Price Index (CPI) inflation rate ended 2023 at 6.61%, 9.76 percentage points below that recorded in December 2022.

"The substantial disinflation recorded during the year was supported by the food and energy segments. In the first case, the evolution took place against the background of the accelerated de-tensioning of the agro-food raw materials market, in the context of relatively favorable domestic and international harvests and the resumption of the export of Ukrainian agricultural goods under appropriate conditions," the report states. "In the case of the energy segment, a notable contribution to the decline of the CPI variation was made by electricity and natural gas, mainly due to the expansion of the scope of applicability of the support scheme for the payment of electricity bills starting from January 1, 2023. Given the basic effects favorable associated with the exit from the basis for calculating the price increases from 2022 on both segments, the annual dynamics of inflation for the electricity and natural gas group reached -8.1% at the end of the year".

• "Surplus liquidity increased considerably during 2023"

The annual dynamics of credit granted to the private sector extended its downward trend until September 2023, reaching a minimum of the last three years (4.5%), as a result of the abrupt tempering of the growth of the lei component, in the conditions of the increase in interest rates and of tightening credit standards. "In such a context, excess liquidity increased considerably during 2023 and was further drained by the central bank through the deposit facility," the report states.

According to the document, the year 2023 recorded a consolidation of the level of Romania's international reserves. On December 31, 2023, they amounted to 66 billion euros, an increase of 13.7 billion euros compared to the end of 2022, mainly as a result of the increase in foreign exchange reserves (up to 59.8 billion euros). The gold reserve was 103.6 tons, of which 61.2 tons were in custody at the Bank of England. From a value point of view, Romania's gold reserve registered an increase of 544 million euros compared to the end of 2022 (up to 6.2 billion euros), as a result of the increase in the price of gold on international markets.

"The systemic risks to financial stability in Romania assessed in 2023 at a severe level were, similar to the previous year, the one generated by uncertainties at the global level (increasing towards the end of the year, against the background of the outbreak of the conflict in the Middle East and the continuation of the war in Ukraine) and the one caused by the deterioration of macroeconomic balances, in the context of regional and international geopolitical developments, as well as uncertainties regarding the conduct of fiscal and revenue policies", mentions the BNR.

According to the report, other important systemic risks, but of relatively lower intensity, are the one determined by the delay in reforms and the absorption of European funds, especially through the National Recovery and Resilience Plan (high level), and the non-repayment of loans contracted by non-governmental sector (moderate level).

"In a context marked by such risks, it is worth noting that the banking sector in Romania has remained resilient, with the main prudential indicators having a favorable evolution and maintaining levels higher than those on the European level or comparable to them. The indicator of coverage of the liquidity requirement was placed at the end of 2023 at the level of 280.6%, higher than the average of the EU countries, and the solvency was maintained at an adequate value, namely 23.6% in December 2023", the report states.

• "The Romanian banking sector registered a profit of 13.5 billion lei last year, an increase of 34.3% compared to the previous year"

Last year, the Romanian banking sector registered a profit of 13.5 billion lei, an increase of 34.3% compared to the previous year, in the context of the upward evolution of the operating profit, as a result of the increase in net interest income, and a level less net expenses with adjustments for expected credit losses.

"Out of a total of 32 credit institutions (including branches of foreign legal entity banks), 25 banks (with a cumulative market share of 99.4%) recorded a total positive net result in the amount of 13.6 billion of lei, while seven small banks recorded cumulative losses amounting to 0.12 billion lei", the document states. The rate of non-performing loans remained in the low risk area (2.4% in December 2023), and the degree of coverage with provisions remained at a relatively high level (64.6%), clearly higher than the European average.

Over the whole of 2023, the leu depreciated by 1% against the euro and appreciated by 2% against the US dollar (based on the average values of the exchange rate in December).

Last year, the BNR recorded a net profit of almost 2.43 billion lei, 124% more than that of 2023, of 1.08 billion lei. "According to the law, the share of 80% of the net revenues in the amount of 1.94 billion lei was regularized with the state budget", the BNR report states.