Anamaria Bohdan (37 years old from the capital) is a freelancer. During the pandemic he was doing well, and since he could not go on trips that would have consumed his money, he put it in the bank. The pandemic has passed, business has begun to slow down, but Anamaria now has a different problem: the financial fog in which the government is leaving her.

He doesn’t know if he will benefit from being a PFA or if he will have to choose another form of organization, he doesn’t know if he will be subject to new taxes or if VAT will not increase, which would be terrible for everyone. So he keeps his money in the bank to protect himself.

There are hundreds of thousands of people like Anamaria. Romanians’ bank savings increased by 13% in real terms (adjusting for inflation) in July 2023 compared to July 2022, while lending fell by more than 8%, signaling that people have money but are cautious and consider it is better to save while avoiding to increase.

According to BNR data, household deposits in lei increased in July to almost 200 billion lei, up by more than 23% (13% in real terms) compared to the same period of the previous year.

State credit decreased in July 2023 by 0.05 percent compared to June 2023, to 189,829.7 million lei. And deposits of non-governmental resident clients decreased in July 2023 by 0.6 percent compared to the previous month, to the level of 529,949.2 million lei. Deposits in lei of other sectors (non-financial corporations and non-monetary financial institutions) increased by 13.1 percent (3.3 percent in real terms).

People are saving money as they slow spending and try to adjust to an economic environment with still high inflation.

While high household deposits can be seen as an expression of reasonable aggregate demand (although this may contribute to economic recovery), the fact that people are delaying their spending may also be an expression of high political/fiscal uncertainty. The government is very confused about how it wants to reduce the slippage in the economy, it is not clear what new taxes will appear or which of the existing taxes will be increased, all this confusion makes people wait with their money in the bank until it makes things more clear.

Economists talk about “precautionary” savings, when people save money because they don’t know what the future holds and want to be careful.

The coalition is discussing a possible general VAT increase of 1-2 percentage points, which will lead to higher prices in the chain, which will require a new interest rate increase by the National Bank of Romania and will mean higher bank rates for those with loans. A real closed circle.

Consumers also continued to avoid new loans, and if we talk about real estate loans, this market will decline from September 2022, according to data from the National Bank.

I know inflation is melting away my savings. But for now, I think it’s the most liquid way to put money away. In Romania, population consumption is the main driver of the economy. When it weakens, GDP also slows.

During the pandemic, Anamaria spent more than now. “I saved a lot of money, but I also spent it. I bought all kinds of equipment to exercise because I couldn’t run anymore,” she says.

But the inflationary impulse completely changed his point of view. Increasingly high prices hit her hard. At first, he cut back on buying clothes and visiting beauty salons. Then he cut back on eating out. Before the pandemic, we ate in the city 3-4 times a week in the evening. Now I go out once a week at most, she says.

At the end of last year, he was trying to find a place to live so he wouldn’t live in a rental anymore. But high interest rates and the “ridiculous” prices sellers are asking have forced her to shelve that plan. “Besides, I’m afraid to commit myself for the next 25 years. What if something happens and I can no longer pay the contribution? Or am I losing clients and therefore my income will not be enough for the bid? Now is a very uncertain period, and I prefer to wait,” Anamaria explains.

Photo source: © Vlad Ispas | Dreamstime.com