Romania has been confirmed as the fastest growing economy in the EU, following figures released on August 17. The non-eurozone country expanded 5.7 percent in the second quarter of 2017, surpassing its predicted year-on-year growth rate of 4.8-5.1 percent.
Other results from statistical body Eurostat revealed that Romania’s economic performance is in keeping with the general EU trend, whereby Central European economies are growing at a faster rate than their western counterparts. As the second-fastest growing EU economy, Latvia posted a growth rate of 4.8 percent during the second quarter of 2017, while the Czech Republic, Poland and Lithuania all delivered strong results.
Although the figures are encouraging, analysts have warned that such high levels of growth are largely being stimulated by government spending programmes and will prove difficult to sustain
Although the figures are encouraging, analysts have warned that such high levels of growth are largely being stimulated by government spending programmes and will prove difficult to sustain. “Romania definitely stands out, but the quality of growth is not as impressive as the headline figure, because the economy is mainly driven by government’s fiscal stimulus,” Piotr Matys, an economist at Rabobank, told the Financial Times. “That means the current rate of growth may not be sustainable when the positive impact of fiscal measures fades and both exports and investment remain sluggish.”
Although fiscal stimulus is not the only reason behind Romania’s strong performance – increased demand is also causing growth in many Central European economies – government policies to reduce taxes and increase wages for public sector workers are a major factor. They also mean that Romania is predicted to run a budget deficit of 3.5 percent this year, the largest in the EU.
The prospect of increased borrowing rates could ultimately make the monetary policies being pursued by many Central European governments look short sighted, but Brussels will no doubt be broadly pleased by the EU’s current economic performance. The bloc as a whole grew by 2.3 percent in the second quarter of 2017.