The situation in the industry remained difficult, improvement is possible only in the medium term, according to the latest Inflation Report published by the Central Bank. There were no signs of recovery in the final months of last year (recent announcements even suggested the closure of troubled factories), but there may be some small hope with investment in new production capacity.

Deficient demand at the EU level does not yet provide the necessary impetus for the revival of domestic industry

Labor productivity also recorded a larger decline than the decline in output, amid still modest positive dynamics in the number of employees.

Weak demand at the EU level is not yet providing the impetus needed to revive domestic industry, as new orders from the foreign market remain only marginally higher in the first 10 months of the year compared to the same period in 2022.

In addition, confidence among Eurozone manufacturing companies is among the lowest on record. Reasons for pessimism include declining purchasing power, high interest rates on loans and barriers to world trade.

Several factories in the chemical industry and the production of auto parts may close – demand is slowly disappearing

There were no signs of recovery in the final months of last year (recent announcements even suggested the closure of troubled factories), but there may be some small hope with investment in new production capacity.

On the one hand, we are talking about several plants of the chemical industry and auto components, producing products, the demand for which is slowly disappearing along with the structural changes taking place in the respective markets. In the case of the chemical industry, the main problems cited are high production costs – fertilizer production was again partially suspended, operators blame the higher prices that industrial gas consumers in Romania have to pay compared to other European countries – and which make domestic production uncompetitive.

Other major new investments are scheduled to be commissioned during 2024

Instead, during 2024, it is planned to introduce several new large-scale investments in such areas as the production of tires, household appliances and other electrical equipment, medicine or construction materials.

And for the automotive industry there are certain favorable prospects, connected, in particular, with the launch of production of models, including hybrid and electric ones, with a higher added value. However, industry companies believe that legislative changes to reduce financial support provided through national fleet renewal programs are hampering activity in the sector.

So far, the mood remains bleak: falling demand (especially foreign), the gradual disappearance of markets for some locally produced goods, as well as losses in competitiveness, which have caused capacity utilization to fall to close to 67%. the second quarter of 2020 (marked by the outbreak of the first wave of the pandemic and the temporary closure of numerous production facilities).

High interest continues to drive investment to increase renewable energy production capacity (especially PV parks)

High interest continues to attract investments to increase the production capacity of renewable energy, aimed both at large-scale projects (especially photovoltaic parks) and at ensuring the own consumption of companies and the population.

In addition, in the first half of 2024, the Green House financing scheme is expected to be restored, which will include, in addition to the component managed by the Environmental Protection Fund, a source provided by the PNRR, intended exclusively for domestic consumption.

At the same time, investment projects in the field of electric mobility are being implemented (aimed, for example, at the launch of an electric bus production line in the first half of 2024, as well as at the start of production of fully electric versions of some buses). models of locally produced cars).

The labor market has a rather high degree of inertia, which is also contributed to by structural problems

The slowdown in economic growth has gradually begun to be reflected in the labor market, but it is characterized by a rather high degree of inertia, the adaptation of which is facilitated by such structural problems as low participation, a shortage of qualified personnel or an ineffective education system. market requirements leave much to be desired.

The annual dynamics of the labor force in the economy slowed to 1% in October-November 2023 (compared with 1.4% and 1.3%, respectively, in the II and III quarters), the main contribution to this evolution was made by market services, in line with the effect of hardening of demand .

Also contributing to the slowdown was industry, an activity facing difficulties at the international and especially European level; however, the decrease in the number of employees was insignificant (-0.1%).

Thus, most industries saw either moderate hiring or layoff rates (with larger declines in light industry and furniture), but the size of layoffs remained limited relative to the decline in activity.

Only a few industries have seen more stable growth rates in staffing patterns, namely automotive, electronics manufacturing, food processing, pharmaceuticals and crude oil refining, but even in these cases the trend is downward.

In trade, the number of employees remained practically at the level of the same period of the previous year, while in construction, the annual dynamics of the number of employees remained relatively stable (2.6%, similar to the figure in the third quarter), in the context of many ongoing infrastructure projects. In the budgetary sphere, there was a slowdown in the number of employees employed by state administration bodies

Price inertia before disinflation

After more than two years of almost continuous growth, the latest developments indicate a turning point in the annual dynamics of prices for non-food goods and market services since the beginning of the year. However, for the two segments, monthly price swings are still high from a historical perspective, which is materializing in some stiffness as inflation eases.

They also remain vulnerable to possible shocks: for non-food goods, attacks on cargo ships in the Red Sea are already affecting international trade flows, and for services labor costs remain a pressure factor.

In both cases, the fall in consumer demand seems to have stopped at the end of 2023 in the context of strengthening the purchasing power of the population and the return of interest in consumer loans, possibly due to a slight decrease in interest rates, as well as the decrease in prices since the last half of the year.

Population consumption resumed annual growth (2.6%) after stagnation in the previous interval. However, this trajectory was not supported by the segment of population spending, which slowed down its annual pace, which is reflected in the level of revenues from retail trade and from market services provided to the population (deceleration in real terms to 0.2% and 1.2%, respectively).

The growth potential of online commerce attracts the interest of commercial operators

In the case of trade, the downward trend was almost universal, the notable exception being online trade, which reversed its trajectory after five consecutive quarters of negative values. In addition to the role of a suitable tool in the process of cost optimization, online commerce will also benefit from the expansion of the number of homes with Internet access (especially in rural areas, where their share will increase by about 5 percentage points in 2023, up to 88.1%, according to INS).

The growth potential of online trade is attracting the interest of commercial operators, most of whom intend to increase the resources allocated to the expansion of logistics capacities or the development of new commercial strategies aimed at this area. At the same time, demand for consumer credit remained strong, perhaps due to a slight decline in interest rates, as well as a period of lower prices in the second half of each year.

The increase in consumer demand due to rising incomes will also extend into the first half of 2024, when the increase in the pension score and new public sector wage increases will take effect on January 1, the BNR report also shows.