Romania: Macroeconomic Country Outlook
- GlobalData forecasts the economic growth to slow down to 3.7% in 2022 as high inflation level is expected to impact on consumer confidence
- Romania was ranked 50th out of 152 nations in the GlobalData Country Risk Index (GCRI) Q2 2022
- According to GlobalData, wholesale, retail trade and hotels gross value added to expand by 4.1% in 2022
According to the World Economic Forum Travel & Tourism Development Index (2021), Romania was ranked 53rd of 117 countries. From January to April 2022, around 2.5 million tourists visited Romania, a 33.8% increase on an annual basis from the previous year. The number of foreign tourists in Romania rose by 277.8% on an annual basis to 336,600 during January to April 2022. The number of overnight stays was 4.8 billion during the same period, an increase of 37.6% over last year.
Key findings
- Romania's 2022 annual budget: According to the budget 2022, the general government deficit is projected at 5.8% of GDP in 2022 and the economy is forecast to witness a growth of 4.6%, with inflation at 6.5%. The Romanian economy is facing three key issues, in 2022, which include budget deficit, current account deficit and inflation. The revenue and expenditure have been estimated at 33.4% and 39.2% of GDP, respectively, in 2022. The budget bill drafted fiscal consolidation process of the country which gradually aims to reduce the fiscal deficit to 2.02% by 2025. The coalition government of Romania envisages raising a series of taxes from 2023. This includes higher dividend and property taxes, which are projected to increase the budget revenue by ROM13.4 billion ($3.2 billion). Higher excise duties on cigarettes and alcohol will start from August 2022 and are expected to generate ROM2.2 billion ($0.5 billion) by the end of 2022.
- Russian war on Ukraine to negatively affect Romania’s economy: Certain industries in Romania remain vulnerable to the indirect impact of Ukraine crisis. Automotive, machineries and construction are dependent on energy imports, energy price movements and raw material needs, making it exposed to the crisis. Rubber, steel, iron, lumber, and phosphate rock, a key component in fertilizer and chemical production, are among the basic resources with an endangered supply. According to the European Commission, Romania imports 20% of its gas import from Russia pipeline via Ukraine, thus making it dependent on Russia.
- Romania was ranked 55th out of 190 countries in the World Bank's Doing Business ranking for 2020: According to the World Bank, Ease of Doing Business Report (2020), Romania was ranked 55th out of 190 economies with a score of 73.3 out of 100. Starting a business in Romania takes 20 days with six procedures. In terms of trading across borders, Romania was ranked first globally, with a perfect score of 100. In terms of paying taxes, the country was ranked 32nd with a score of 85.2 out of 100. The country was ranked 25th on the getting credit parameter with a score of 80 out of 100.
- FDI regime 2022: The Romanian government amended the country's FDI screening system by passing government emergency Ordinance on April 14, 2022. According to the Ordinance, the government must approve FDI projects in defined economic sectors that are worth more than EUR2 million ($2.5 million). Investors from non-EU nations are subject to the same regulations as investors from the EU who are directly or indirectly under the control of non-EU citizens. In an exception, investments may be subject to review even if they fall under the EUR2 million ($0.4 million) cap if, by their nature, they might affect national security or public order or pose dangers to them.
- Improving environmental performances: According to the Yale University, Environmental Performance Index (2022), the country was ranked 30th out of 180 nations with a score of 56 out of 100. On the ecosystem vitality parameter, the nation ranked 9th out of 180 nations. The country ranked first out of 180 countries in the parameter of Black Carbon growth rate, SO2 growth rate, Grassland loss, and Marine protected areas. According to the Eurostat, municipal waste generated per capita decreased by around 26kg, from 313kg per capita in 2010 to 287kg per capita in 2020. The municipal waste generated per capita in Romania (287kg per capita) was less compared to the average of 27 countries of European Union which was 505kg per capita in 2020.
- Romania introduces tax incentives, applicable for 2021 - 2025 period: In September 2020, Romania introduced tax incentives for organizations, which are subjected to corporate tax, microenterprise tax or taxes on certain activities such as the HoReCa (food service and hotel industries), based on certain conditions (as stated). These incentives will be applicable through 2021–25. The new tax reductions are: i) 2%, if net assets are positive and have at least 50% value of share capital, ii) up to 10%, if the value of net assets are higher as compared to the previous year (specific ranges provided by the legislation), iii) 3%, if the value of net assets is higher as compared to the value recorded in 2020 and is higher than the limit stated by the law applicable from beginning of 2022.
Key fundamentals
Sectoral outlook
- Romania's construction sector to gradually recover: According to Romania’s National Institute of Statistics, the construction works volume index in Romania contracted by 9.5%, on an annual basis in April 2022, and it dropped by 3.4%, compared to March 2022. The Romanian construction activity is expected to remain stagnant for a second year in a row after declining by 0.6% in 2021, given the ambitious initiatives proposed under the Relaunch and Resilience Facility; this should not be the case, but the growing cost of building supplies and inelastic supply of labour are major obstacles to the sector's expansion. On a positive note, families and investors who are concerned about rising inflation, which is predicted to last for at least another year, may view real estate assets as a safer alternative for investing their savings and resources, thus keeping the sector active for the foreseeable future. According to GlobalData forecasts, the construction sector is expected to grow by 2.4% in 2022 and 4.5% in 2023.
- Positive outlook for Romania's agricultural sector: The government is currently revaluating how it will proceed with the Common Agricultural Policy (CAP) plan, which outlines Romania’s plans to achieve the nine EU-wide objectives of the reform. The crisis in Ukraine is expected to have a huge impact on Romania's agricultural policy. Romania is putting a lot of emphasis on food processing and has set aside particular financing to expand this sector of its economy. According to GlobalData forecasts, the agriculture sector is expected to grow by 3.6% in 2022 and 3.1% in 2023.
- Moderately positive outlook for Romania's aviation sector: State-owned airline TAROM, having recorded sustained losses over last fourteen years and received severe blow by pandemic to this sector, has necessitated the government to revamp the country’s main carrier in fast pace. As a part of the plan, Romania’s Ministry of Transport announced to hire professionals from the corporate world to save the loss running carrier. There is consistent support from the European Commission to the Romanian airline industry. In 2021, the EC approved more than $35 million to Romania to support the activity in backdrop of the coronavirus outbreak and mitigate the sudden liquidity shortages faced by the airlines.
GlobalData Country Risk Index (GCRI) – Q2 2022
Romania was ranked 50th out of 152 nations in the GCRI Q2 2022. The country's score is in the low-risk nations band (between 30 and 40). Romania's overall risk score is higher than the eastern Europe but lower than the world average in GCRI Q2 2022. The country had an overall score of 38 and performed well (compared to the eastern Europe average) in the political, social and legal parameters. However, its risk score was relatively higher in demographic and social structure and technology and infrastructure parameters.
GCRI Methodology
GlobalData's unique Country Risk Model determines the existing and future level of country risk by assessing various qualitative and quantitative factors. The index is designed to help firms formulate their global business strategies based on historical developments in an economy.
The Country Risk Index incorporates the latest available macroeconomics, political, social, technological, environmental, and legal data from a range of recognized national and international statistical sources and incorporates proprietary data from GlobalData. Eastern European nations in this publication include Romania, the Czech Republic, Slovakia, Hungary, Bulgaria, Poland, and Russia.
About the report
GlobalData Macroeconomic Outlook report is designed to provide detailed macro-economic analysis which will help clients in their business planning, investment and strategic decisions, and analysis. It also provides a quick view of the current situation and the risk score of the country in comparison to region and world based on the proprietary risk framework. The report also highlights key strengths, weaknesses, opportunities, and threats in each of the pillars of PESTLE, economic growth prospects, and key events which can impact the country’s future outlook.
More details: Macroeconomic Outlook Report: Romania
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