SEE Property Forum: Economic growth of 1.2-1.8%, at the end of the year, for Romania

The national economy will register an economic growth between 1.2 and 1.8% at the end of 2024, much lower than the one announced by the Government, of 2.8%, based on the data provided by the National Strategy and Forecasting Commission , said yesterday, the participants at the annual conference of the SEE Property Forum, an event that took place in Bucharest. The economic experts present at the conference showed that for a robust and sustainable economic growth there is a need to increase labor productivity, create the necessary conditions to reduce labor migration and a competitive education system.

Csanad Csurös, CEO Property Forum, said: "Romania has huge potential. That is why we are dedicated to providing unparalleled information about the Romanian market and turning Business Forum into a destination for professionals looking for comprehensive coverage of general market trends, economic news and listed company activities. What we are offering to the public today, at the SEE Property Forum 2024, is just the beginning of our strategy to expand into the Romanian market and into industries other than real estate, and to offer a unique coverage of the economic landscape through online news and dedicated events" .

Dorota Strauch, Director for CEE and Chief Economist for Poland at Raiffeisen Bank International AG, presented an individual analysis of the economic outlook for 2024 in Central and Eastern Europe, also focusing on the mixed outlook for Romania's economy this year. Dorota Strauch stated: "Although Romania registered a negative surprise in the review of economic growth, the country remains resilient, with continued growth in consumption and investment. Real GDP growth for Romania is forecast at 1.2% for 2024, recovering slightly to 2.2% by 2025. Romania's labor market continues to support consumer demand, and real wage growth is expected to provide a boost modest. However, inflation remains a concern, with the average inflation rate forecast at 5.6% in 2024, improving slightly to 5.3% by 2025. This persistent inflation, fueled by rising wages and service prices, creates challenges for monetary policy and household purchasing power. Despite these inflationary pressures, Romania benefits from the use of EU funds, which have supported investment activities even in a period of economic slowdown. Looking ahead, the year 2025 is expected to bring an acceleration of investment, fueled by foreign direct investment and the continued use of EU resources, which will position Romania for a stronger recovery".

The economic growth of only 1.2% at the end of 2024 for our country is lower than the 2.8% estimated by the Government based on the information provided by the National Strategy and Forecast Commission. From the Raiffeisen Bank study, we also note that at the end of 2024 we will have an exchange rate of 5 lei for one euro. The Raiffeisen Bank expert recalled the causes that led to the current state of affairs in Europe - the syncopes in the supply chains and the increase in energy prices caused by the aggression illegally triggered by the Russian Federation in Ukraine - but pointed out that in Romania there is a delay in the implementation of the fiscal reforms assumed by the Bucharest authorities, delays that affect the consolidation of the state budget.

From the study carried out by Raiffeisen Bank, it appears that this bank's experts expect the National Bank of Romania to operate a new reduction in the reference interest rate, from 6.5% per year to 6.25% per year, by the end of 2024. rate to be maintained between December 2024 and March 2025, so that, by the end of next year, it drops to 5.5% per year.

• The current demographic trend, a major risk for the future growth of the national economy

The data from the study prepared by Raiffeisen Bank regarding the forecasted economic growth for our country also coincide with the estimates made by Bancii Transilvania and ING specialists.

Valentin Tătaru, chief economist at ING stated: "For this year, ING estimates a national economic growth of 1.3%, so not far from the data included in the Raiffeisen study, but for the next year we are more optimistic and estimate an increase of 3%, against 2.2% - economic growth forecast by Raiffeisen. The economic growth announced by the Government comes from the Forecasting Commission and on its basis the budget is builtfor next year, but we should take into account that the budget deficit at the end of this year will be much higher than the one forecast last year, from 5% to somewhere around 7.9%".

Ioan Nistor, chief economist at Banca Transilvania: "We are somewhere at 1.8% forecast economic growth, so not very far. We try to monitor the components that lead to this growth and how they are influenced by possible political decisions behind it".

The representatives of ING and Banca Transilvania showed that next year they expect that, after the parliamentary elections, the future Government will increase certain fees and taxes, in order to reduce the budget deficit, but they hope that the Executive will also emphasize the efficiency of budget expenditures. The two experts stated that a longer period is needed to make these budget adjustments so that the impact felt by the business environment is less.

Regarding the labor force, Ioan Nistor said that the figures show a serious situation regarding its migration, the aging of the labor force, but nevertheless he declared himself optimistic about the targets for the growth of the national economy. On the other hand, Valenti Tătaru stated that, despite the increase in the number of people who are in the middle class in terms of monthly income, his vision regarding economic growth is rather a pessimistic one.

"People leave the country not only because of low salaries, but also because they are disappointed with the health or education systems. If we look into the future, the demographic trend is quite clear for our country: it is sinking. Regarding education, we are exactly the same, if we refer to the results obtained in the PISA tests. In practice, we have an uneducated workforce, which will lead to a limitation of the population's skills, a limitation that will also be reflected in the jobs it can fill", said Valentin Tătaru.

The ING representative also stated that under these conditions, the state must not repeat the errors of other governments in South-Eastern Europe regarding national economies, it must not over-regulate, nor create new institutions, but it must only deal with supporting the increase in labor productivity and average income.

• Romania, economically more competitive than Hungary

Csaba Balint, member of the Board of Directors of the National Bank of Romania, stated that in order to have a robust, sustainable economic growth, an increase in labor productivity is needed, as well as a qualified workforce, new financial instruments to finance the purchase of new technologies and the innovation-research that will lead to the increase in the competitiveness of companies in our country.

The BNR representative stated: "Last years we had economic growth above the European Union average, but now we have slowed down a bit, because I think that the closer we get to the technological limits of our industrial branches, the harder it is to we are developing, even if we have the necessary workforce to increase productivity. Taking over some European models could help us develop more easily, but I believe that some of these models should not only be copied and implemented, but should be reinvented to increase the competitiveness of companies in our country. Convergence has slowed down and we are experiencing problems with the workforce, which is becoming a scare for the national economy and unless action is taken on this, it will be increasingly difficult for us to have increased productivity and growth sustainable economy. (...) On top of this problem and the migration of the labor force, there is also the demographic decrease. If at one time, a child in the rural environment was seen as an investment for the future, now he is seen as a burden, due to the high costs of his maintenance and education, and I think that the authorities must take measures in this area as well, more because we are facing a very low birth rate".

Regarding the economic growth and the data presented in the report prepared by Raiffeisen Bank, Peter Akos Bod, former governor of the National Bank of Hungary, also expressed himself, who said: "The central authorities in Budapest were shocked when they found that they had to report in recent years, regarding competitiveness and economic growth in Romania, after Austria was the reference point for 150 years. (...) Regarding the accession of the two states to the Eurozone, we must admit that Romania and Hungary are still not economically competitive with the member states of the respective zone. I hope that sooner or later we will achieve this competitiveness to enter the Eurozone. If in Romania you have set a target regarding joining the Eurozone and I am happy to follow your path, in Hungary things are more complicated, because the decision-makers want, through the prism of sovereignty, to maintain the national currency, the forint. It's just about populism. I like the forint too, I like how the banknotes look in terms of design, but let's be serious because the Hungarian national currency is not competitive at the European level. Both states face similar challenges, with populist movements promoting national sovereignty, ideas that I see as futile. Competitiveness must be the main objective of any government. The government must not take measures that lead to economic failure, to losers, but to support competitiveness and economic champions. In Romania, the level of competitiveness is higher than in Hungary, due to the strict economic interventionism of the government in Budapest. However, I believe that fair competition is needed for the benefit of customers and companies".

The former governor of the National Bank of Hungary also said that no country in the region has discovered the secret of economic growth, all having good and bad decades, and stated that, looking ahead, the big test for most countries in central and southern Europe est will be their ability to retain young and educated people, because their migration leads to a loss of labor productivity.

Juraj Kotian, Head of CEE Macro/Fixed Income Research at Erste Group Bank AG, said that "demography is a potential obstacle to future economic growth" and that he is concerned that young people are leaving to study abroad due to the poor quality of home education system. He said young, educated people are needed to mitigate the risks of an aging workforce, and says better-educated workers will be able to stay employed longer and be more productive.

The SEE Property Forum is an annual event organized in Bucharest by Property Forum - a top CEE media and events platform, which brought together top economic experts to debate the effects of the economic convergence process in the region, as well as the current and future economic perspectives of Central and Eastern Europe (CEE).