I think it’s time to try to move beyond the current paradigm of multiple crises and start predicting, in a concrete and pragmatic way, how we want Romania’s economic and social course to look in the coming years, writes Cosmin Marinescu, advisor. of the President on economic issues, in his blog.

Efforts and concrete measures aimed at overcoming this critical period must now be accompanied by ambitious forecasts aimed at stimulating the private environment, exploiting competitive advantages and better use of local and national resources.

On a global scale, significant steps still need to be taken before we can again talk about stability and predictability. Last year’s signs of recovery in the major economies were virtually nullified by the effects of the war on the energy sector and the supply chains of some important markets.

International organizations confirm the fragility of the world economy, the growth of which will be about 3% in 2022, according to estimates by the International Monetary Fund and the World Bank.

At the level of the European Union, severe energy dependence, disruption of supply chains, as well as climatic phenomena affecting agricultural potential are new factors of economic instability. Under these conditions, a modest economic growth of only 2.7% is estimated at the level of the whole block of communities.

Financially, the global context is dominated by persistent inflation, exacerbated by the energy crisis and the sharp rise in commodity prices. But we must realize that the current inflation, which started in 2021 and has now reached record levels compared to recent decades, originates from the monetary and fiscal policies of “whatever” adopted by the countries of the world as a reaction to the anti-crisis response to the economic challenges of the pandemic.

Much of global inflation is the result of monetary and fiscal measures from the pandemic, as well as the inflationary spiral of war and the energy crisis

In the case of Romania, the 5.8% economic growth recorded in the first half of the year is a better-than-expected figure, signaling an increase in the annual economic growth forecast of 3.5%. In this regard, the strengthened dynamics of the services sector should be highlighted, with growth of more than 8% and 9% in the first two quarters, while industry, however, continues to develop in the negative zone.

The main driver of economic growth is still private consumption, which during the first two quarters of the year held at 7% and 8%. Things are not going well with investments.

For example, the level of fixed capital formation is only 2.2% in the first half of the year, while net investment in the economy is slightly reduced, by almost 1%, in a context still marked by uncertainty.

Hence, there is a need to speed up the implementation of public investments in these last months of the year, taking into account the backlog of investment costs as a share of GDP, according to the latest data related to the implementation of the budget, as for investments from Europe, funds and projects from national money.

However, it is good to see the appetite for foreign investment maintained, as evidenced by the nearly 44% increase in foreign direct investment in the first 7 months of the year, even if it fails to balance the deepening external imbalance – probably the most serious macroeconomic vulnerability today.

In the first 7 months of the year, the current account deficit increased by almost 64% compared to last year and reached almost 15 billion euros, which is about 5.8 billion euros more than in 2021.

The problem is that financing the current account deficit with non-debt-generating flows remains at the same suboptimal level

The problem is that the financing of the current account deficit from non-debt-generating flows remains at the same suboptimal level of just over 40%, and the current account deficit is expected to widen further, which could well exceed 8% of GDP by the end of the year.

These developments raise some questions about the quality of economic growth and draw attention to the challenges we face. We are dealing with older structural problems, and it is enough to mention that Romania entered the pandemic with the most fragile state of public finances, recording in 2019 the largest budget deficit of all the states of the Union as a result of the risky policies and pro-cyclicality of the previous governments.

Subsequently, during the two years of the pandemic, Romania’s public debt registered one of the highest increases in the European Union, from 35% of GDP in 2019 to almost 50% of GDP today, although Romania returned to being one of the first in terms of gross domestic growth. Product before the pandemic, still in the 2nd quarter of 2021.

Therefore, we face structural problems accumulated over several years, both as a result of incorrect economic policies and crises or disproportionate measures.

Read the rest on Cosmin Marinescu’s blog