Hungary has been in recession for several months. The Netherlands also went into recession in the middle of the year. In Romania, the economy is slowing, and the lack of fiscal reforms, compounded by a series of opaquely negotiated measures, is adding to the fog in the economy. Will there be turbulence or just a cold tailwind? How do we know what might happen next? It’s not difficult, you just need to look at a few indicators.

What are the signs of approaching turbulence?

1. Supermarket costs (adjusted for inflation) are falling

The main driving force of Romania’s economy is private consumption. It is the main component of GDP, an indicator that measures the development of the economy. People go shopping, rest, dine and buy all kinds of products, despite the price increase, which the National Bank is trying to keep under control.

However, consumption in Romania is decreasing. According to the INS, retail sales rose just 3 percent in the first half of the year as people increased spending on food, clothing and medicine. Fuel trade was also in the red in the first half of the year.

For NBR, these statistics are somewhat good news: the decrease in consumer demand helps inflation, and it is likely that the key interest rate will be maintained at the next meeting of the Board of Directors of the National Bank. by 7%. The NBR tries to keep the monetary policy interest rate high enough (even if at a level below the inflation rate) to curb demand without stifling the economy.

Consumer spending provides signals to firms in the economy about whether to hire new workers or expand. If people spend a lot and money flows into the economy, companies think about expanding by hiring new people. So far, the signal is not optimistic.

2. Evolution of wages. An eternal problem

You need money to spend. Even adjusted for inflation, incomes rose in many areas. Real wages decreased in the field of mining of metal ores, in the field of production of varnishes, paints, rubber, in health care, in total in 10 branches of the economy.

But the uncertainties are very large. Will there be an increase in VAT? Will taxes go up? However, inflation is still very high and purchasing power is suffering. The good news is that it’s an election year. Although this may be bad news for the entire economy.

3. Industrial production

There is not much to say here. Industry negatively contributes to the growth of the economy. Data from the INS show industrial production fell 2.1% month-on-month and 5.9% year-on-year in June. In the first half of the year, the national industry shrank by an average of 4.8% year/year, the evolution is determined by the adjustment in the field of international trade, the deterioration of the climate in the Eurozone and the increase in financing costs, according to the report of Banca Transilvania.

4. Labor market

Consumption may keep the economy afloat, but the labor market is critical if we want to measure the economy. And pointlessly cutting jobs with no research based on numbers and just to pretend we’re reducing economic imbalances is ridiculous.

It would be fine for government officials to look at new jobless claims (at the level of development regions, if not in more detail), at the duration of unemployment (to see how long it takes people to find a new job), at the number of jobs in sectors of the economy, to the level of unemployment and to vacancies.

What is a recession and who is (not) justifying it?

Two consecutive quarters of falling GDP is called a recession. For now, Romania is safe from recession, unless there are economic shocks that derail us. All internal and external estimates point to economic growth, albeit modest.

The recession is officially confirmed (or denied) by the INS. According to the European definition, a recession is “a significant decrease in economic activity lasting more than two quarters.”

Will the NBR continue to raise the key rate if the economy slows down?

no For the time being, the BNR keeps the interest rate at the level of 7% (below the level of inflation). If he increases it too much, it stifles the economy. If he cuts it now, it will allow for further price increases, especially since there are very high risks that fiscal policy will lead to unmanageable price increases.

According to analytical reports of economists, the earliest the NBR will lower the key interest rate is in the middle of next year.

How to protect yourself if a new crisis occurs?

It’s simple: pay off credit card debt, set aside a financial reserve equivalent to 3-6 months’ salary, or consult a financial advisor to help you consolidate your finances.

forum source: Vlad Ispas | Dreamstime.com