Romania's economy is poised to outpace the stagnating economies of neighboring countries, helped by European funds, a stable national currency and foreign investment, boosted in part by the relocation of companies from Russia and Ukraine, Reuters reported, quoted by BTA.

The International Monetary Fund (IMF) expects the Romanian economy to register growth of 3.1 percent this year, and even the European Commission's more modest forecast of 1.8 percent puts it ahead of Poland, which is expected to grow by 0.7 per hundred, and Hungary, which is facing a slowing economy and accelerated inflation.

Economic growth in Romania comes after a decade in which one of Europe's poorest countries closed behind its neighbors to become the second-largest economy in Eastern Europe after Poland.

According to the latest data from Eurostat, the Gross Domestic Product (GDP) per capita in Romania, measured in purchasing power parity, will be 74 percent of the EU average in 2021, an increase of 21 percentage points compared to 2010.

Romania's prospects are supported by its status as an EU member state and good relations with Brussels.

While the authorities in Budapest and Warsaw argue with Brussels about the conditions they must meet as a rule of law in order to receive the billions of euros provided for in the Recovery and Resilience Mechanism, Romania has already withdrawn six billion euros in grants and low-interest loans.

Prime Minister Nicolae Cuca said the government wants to absorb more than 10 billion euros annually - the equivalent of four percent of GDP - of the nearly 90 billion euros worth of European funding that will be made available to Romania by 2027.

Following progress on justice reforms, the European Commission recommended in November that the Cooperation and Verification Mechanism, introduced in 2007 when Romania joined the bloc, be scrapped. 

Standard & Poor's, as well as other rating agencies, which give Romania the lowest investment grade pending a reduction in the budget deficit, indicated that it expects Romania to make progress on reforms included in the recovery and resilience plan to receive the European funds.

The stability of the national currency, the Romanian leu, is another positive factor, especially compared to the Hungarian forint, which reached historic lows last year.

Higher wages have already prompted some Hungarian citizens to start working in industrial zones in western Romania, Reuters notes.

A study by the agency shows that most economists expect another significant devaluation of the forint in 2023, while the Romanian leu exchange rate is expected to depreciate only slightly.

The relocation of companies from Russia and Ukraine to low-cost neighboring countries boosted the level of foreign investment in Romania in the January-October period to 9.39 billion euros, the highest level since the country joined the EU.

Over 10 thousand electric cars were bought in Romania in 2022.

A 2022 survey by Ernst & Young consultancy shows that more than half of the 101 foreign companies interviewed have plans to start or expand operations in Romania, particularly in the field of logistics and supply chains, which puts Romania in fourth place in Europe in terms of investment intentions.

Although Romania does not have a single investment promotion agency, officials from the Ministry of Entrepreneurship and Tourism told Reuters they were looking at five possible relocation projects from Russia, Belarus and Ukraine worth 705 million euros.

One of the companies that has decided to move to Romania is Finnish tire manufacturer Nokian Tires, which has announced plans to invest 650 million euros to build a plant in Oradea in northwestern Romania.

Nokian Tires director of investor relations Paivi Antola said the company had analyzed more than 40 possible locations for its plant, taking into account labor availability, logistical advantages, renewable energy sources and access to a rail network.

The Romanian economy also experiences some difficulties, such as the large current account deficit, the aging population and the bureaucracy that hinders the development of infrastructure.

Reducing the budget deficit will be difficult to achieve before the 2024 elections, Reuters notes.



Economic Growth