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2024/02/22 / Erste Group Research

Romania Special Report: Wide Structural Current Account Deficit

Romania checks many boxes when it comes to the reasons for its persistent C/A deficit: a low rate of national savings related to investments, fast economic growth on the road to catching up with the EU, the presence of intertemporal trade in the form of importing capital goods today for creating export capacities in the future, an attractive business destination for global companies with profit repatriation at a record high, the opportunistic reliance of the country on favorable external financing conditions and thus building liabilities to the rest of the world.

The persistent trade deficit for goods of close to 9.0% of GDP is the root of Romania’s C/A deficit. Higher investments and innovation in manufacturing, regained cost competitiveness of some industries and a gradual shift towards sound fiscal policies could narrow the external trade gap.

Full implementation of the reforms agreed with the EC as part of the RRF, targeted and soft intervention of the state in key areas like agriculture to nudge local companies toward new consumer markets and measures to facilitate the accumulation of capital in the local economy are some elements of a proper policy response to Romania’s external imbalance.

Market implications of the C/A deficit are medium-term weakening pressure on the leu and higher financing costs vs. peer countries. International reserves are adequate by most measures, on inflows of EU funds and Eurobond issuance, thus alleviating some of the risks.

A scenario analysis for future trajectories of the C/A balance based on an error correction model shows the baseline for the 2024 C/A balance at -6.9% of GDP vs. -7.2% of GDP in 2023, considering marginal fiscal consolidation, an output gap close to zero and a small loss of competitiveness. No fiscal consolidation efforts, a small positive output gap and an additional loss in competitiveness might result in a C/A deficit of -8.5% of GDP in 2024, in a scenario with a smaller probability. In a medium-term reform-based scenario, the C/A deficit could narrow to -4.5% of GDP.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusRomania
Currency in focusRomanian Leu
Sector in focus-


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