BUCHAREST (Reuters) – Romania is poised to overtake its struggling neighbors this year. Support from the European Union (EU), the stability of the lease, and foreign investment that coincides with the relocation of manufacturing centers from Russia and Ukraine are boosting the economy.
The International Monetary Fund (IMF) expects Romania to grow by 3.1% this year. The European Commission’s conservative forecast of 1.8% is still ahead of Poland, which is expected to see 0.7%, and Hungary, which has been hit by a slowing economy and high inflation.
In the last decade Romania, long known for being one of the poorest countries in Europe and rife with corruption, has become the second largest economy in Eastern Europe, behind Poland, alongside to neighbours.
Gross domestic product (GDP) per capita in terms of purchasing power parity will be 74% of the EU average in 2021, up 21 percentage points since 2010, according to recent data from Eurostat.
The average Romanian citizen needs 20 months of net income to buy a new Dacia Jogger station wagon, the same level as Hungary, which has traditionally been considered richer than Romania.
Romania has made these changes despite longstanding political instability, most recently when the ruling coalition collapsed in 2021.
Underlying Romania’s bright prospects are EU membership and good relations with the EU.
Romania has already received €6 billion from the EU, while Hungary and Poland continue negotiations with the EU over judicial reforms that will finance a multi-billion dollar pandemic recovery fund.
Ciuca has said that Romania will aim to get more than €10 billion a year out of around €90 billion in EU aid available to Romania by 2027. This is equivalent to around 4% of GDP.
There has also been some progress in terms of judicial reform, with the European Commission recommending in November last year that the special supervision of the judicial system, which had been in place since Romania’s accession to the EU in 2007, should be abolished .
“If all the anti-corruption measures included in the plan (Recovery Fund) are implemented correctly, Romania could become a model of good governance in the region,” said an EU official.
The stability of the leu currency is also one of the factors supporting growth. Leu stands out for its stability compared to the neighboring Hungarian Forint, which broke the lows several times last year. Due to higher wages on the Romanian side, some Hungarians are already finding jobs in the industrial western part of Romania.
Zoltan Dio, a theater set designer who lives near Debrecen, Hungary’s second city, has been working across borders for years and has a bank account in Romania to prepare for the decline of the Forint against the Leu. Forint fell 8% against Leu last year.
“Even if I had a job in Hungary, I would be forced to drink about two-thirds of the Romanian price after getting a big discount,” he said.
Romania received 9.39 billion euros of foreign direct investment in the first ten months of 2018, the fastest since joining the EU in the first ten months, helped by companies moving production from Russia and Ukraine to lower-cost neighbors that became maximum
A 2022 survey by Ernst & Young (E&Y) found that more than half of the 101 foreign companies intend to establish or expand operations in Romania, especially in areas such as supply chains and logistics. Romania in fourth place in Europe in terms of investment appetite.
“We are optimistic that investment will increase in the coming years, partly due to EU funding,” said Alex Milchev, head of tax and legal affairs in Romania at E&Y.
Romania’s entrepreneurial ministry said it was overseeing five relocation projects worth an estimated 705 million euros from Russia, Belarus and Ukraine. This includes a project planned by Finland’s Nokian Tires to invest €650 million by 2024 in a factory in Oradea, northwest Romania.
A number of obstacles remain in the Romanian economy. These include huge current account deficits, an aging population, and chronic bureaucracy that hinders infrastructure development. With the 2024 elections ahead, it may be difficult to reduce the budget deficit.
The relationship with the EU has not always been good either. In December last year, Austria’s opposition to unauthorized immigration prevented Romania from joining the Schengen Agreement, which allows border-free travel within the region.
Regional differences are large. Although some rural areas are still without electricity, living standards in busy Bucharest surpass those of former East Germany.
But Mugul Isarescu, governor of Romania’s central bank for more than three decades, is optimistic that things are changing. In an interview in November, he said of the current situation in Romania, “Recently I visited a rural area and the roads were full of cars on both sides. It’s not just Bucharest that is doing well. It doesn’t look like recession or poverty at all.” talk
(Reporters Luiza Ilie and Gergely Szakacs)