Ciprian Dascălu, chief economist of BCR: "We have a competitiveness problem, which can be seen in the current account deficit"

Our country has a competitiveness problem, which can be seen very clearly in the current account deficit, said the chief economist of BCR, Ciprian Dascălu, on Friday, during the press conference where the BCR Romania Purchasing Managers' Index was presented.

Ciprian Dascălu said: "In Romania, the current account deficit is structurally somewhere at 4-4.5% with the economy in balance. There are certain industries that have problems adapting to the new economic environment. Like all countries, we want to have high value-added exports, but in the end it all comes down to manpower. When about 17% of the workforce has higher education, you export what you have. From 2015 to 2016, jobs that require little specialization keep disappearing. It is inevitable because there is competition, and it is very difficult for entrepreneurs to absorb wage increases when the margins are small".

The chief economist of BCR added: "If we want the economy to grow at the same rate, to double once every ten to fifteen years, we need labor force. Educating the workforce was supposed to happen five to ten years ago. We see that the European average of young people between 24 and 35 years old with higher education is somewhere around 40% of the total, and here it is 22%. The economic transformation must start from the base".

According to the economist, the manufacturing industry in our country remains stuck in recession, being affected by supply chain shocks and rising taxes and fees, in the context of the already existence of a generalized weakness in demand. For these reasons, the manufacturing PMI has remained at values below the neutral threshold of 50 since the beginning of the analyzed period in July 2023.

"Factor prices hit their highest level in eight months of historical data in February. Tax increases were cited as the main reason, most likely higher fuel excise duties since the start of the year, along with higher commodity prices. The increase in the prices of production factors was partially mitigated by a decrease in the profit margin, with the selling prices of manufacturers in the manufacturing industry growing more slowly in February compared to January," said Ciprian Dascălu.

According to economist BCR, output expectations for the next twelve months worsened in February compared to the previous month, but remained above the historical average.

The recovery of manufacturing production will most likely take more time and is very unlikely to happen in the first half of this year. We recently revised down our economic growth estimate for 2024 to 2.6% from 3.3% we had previously estimated, following growth below expectations in the last quarter of 2023, which was in line with the quarterly performance of BCR PMI", said Ciprian Dascălu. "We expect a rebound in private consumption in 2024 and we expect it to become the main driver of growth this year, followed by public investment. Private investments will most likely be affected by fiscal uncertainties, and foreign demand will probably have a neutral contribution," concluded the chief economist of the BCR.