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Romania Economy
 
 
 

General

With a GDP of around $264 billion and a GDP per capita (PPP) of $12,285 estimated for 2008, Romania is an upper-middle income country economy and has been part of the European Union since January 1, 2007.

After the Communist regime was overthrown in late 1989, the country experienced a decade of economic instability and decline, led in part by an obsolete industrial base and a lack of structural reform. From 2000 onwards, however, the Romanian economy was transformed into one of relative macroeconomic stability, characterised by high growth, low unemployment and declining inflation. In 2006, according to the Romanian Statistics Office, GDP growth in real terms was recorded at 7.7%, one of the highest rates in Europe. Growth dampened to 6.1% in 2007, but was expected to exceed 8% in 2008 because of a high production forecast in agriculture (30-50% higher than in 2007). The GDP grew by 8.9% in the first nine months of 2008, but growth fell to 2.9% in the fourth quarter and stood at 7.1% for the whole 2008 because of the financial crisis.

According to Eurostat data, the Romanian PPS GDP per capita stood at 46% of the EU average in 2008. Unemployment in Romania was at 3.9% in September 2007, which is very low compared to other middle-sized or large European countries such as Poland, France, Germany and Spain. Foreign debt is also comparatively low, at 20.3% of GDP. Exports have increased substantially in the past few years, with a 25% year-on-year rise in exports in the first quarter of 2006. Romania's main exports are clothing and textiles, industrial machinery, electrical and electronic equipment, metallurgic products, raw materials, cars, military equipment, software, pharmaceuticals, fine chemicals, and agricultural products (fruits, vegetables and flowers). Trade is mostly centred on the member states of the European Union, with Germany and Italy being the country's single largest trading partners. The country, however, maintains a large trade deficit, which increased sharply during 2007 by 50%, to €15 billon.

After a series of privatisations and reforms in the late 1990s and early 2000s, government intervention in the Romanian economy is somewhat lower than in other European economies. In 2005, the government replaced Romania's progressive tax system with a flat tax of 16% for both personal income and corporate profit, resulting in the country having the lowest fiscal burden in the European Union, a factor which has contributed to the growth of the private sector. The economy is predominantly based on services, which account for 55% of GDP, even though industry and agriculture also have significant contributions, making up 35% and 10% of GDP, respectively. Additionally, 32% of the Romanian population is employed in agriculture and primary production, one of the highest rates in Europe.

Agriculture employs about 29% of the population (one of the highest rates in Europe), and contributes about 8.1% of GDP. The Bărăgan is characterised by large wheat farms. Dairy products, pork, poultry and apple production are concentrated in the western region. Beef production is located in central Romania, while the production of fruits, vegetables, and wine ranges from central to southern Romania. Romania is a large producer of many agricultural products and is currently expanding its forestry and fishery industries. The implementation of the reforms and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) have resulted in reforms in the agricultural sector of the economy.

Fishing is an economic mainstay in parts of the East of Romania and along the Black Sea coast, with important fish markets in places such as Constanta and Galati. Fish such as herring, crab, lobster, haddock and cod are landed at ports such as Constanta. There has been a large scale decrease in employment in the fishing industry within Romania due to the EU's Common Fisheries Policy, which places restrictions on the total tonnage of catch that can be landed, caused by overfishing in the Black Sea. In tandem with the decline of sea-fishing, commercial fish farms – especially in salmon, have increased in prominence in the rivers and lochs of the east of Romania. Inland waters are rich in fresh water fish such as salmon and trout.

Romania has been successful in developing its industrial sector in recent years. Industry and construction accounted for 32% of gross domestic product (GDP) in 2003, a comparatively large share even without taking into account related services. The sector employed 26.4% of the workforce. Romania excels in the production of automobiles, machine tools, and chemicals. Motor vehicle production tripled in the 2000s, but still lags behind neighbouring countries such as Hungary or Ukraine. In 2004 Romania enjoyed one of the largest world market share in machine tools (5.3%). Romanian-based companies such as Dacia, Petrom, Rompetrol, Bitdefender, Romstal and Mobexpert have expanded operations throughout the region. However, small- to medium-sized manufacturing firms form the bulk of Romania's industrial sector.

Romania's industrial output is expected to advance 9% in 2007, while agriculture output is projected to grow 12%. Final consumption is also expected to increase by 11% overall – individual consumption by 14.4% and collective consumption by 10.4%. Domestic demand is expected to go up 12.7%.

Industrial output growth was 6.9% year-on-year in December 2009, making it the highest in the EU-27 zone which averaged -1.9%.

In 2003 service sector constituted 55% of gross domestic product (GDP), and the sector employed 51.3% of the workforce. The subcomponents of services are financial, renting, and business activities (20.5%); trade, hotels and restaurants, and transport (18%); and other service activities (21.7%). The service sector in Romania has expanded in recent years, employing some 47% of Romanians and accounting for slightly more than half of GDP. The largest employer is the retail sector, employing almost 12% of Romanians. The retail industry is mainly concentrated in a relatively small number of chain stores clustered together in shopping malls. In recent years the rise of big-box stores, such as Cora and Carrefour, have led to fewer workers in this sector and a migration of retail jobs to the suburbs.

Since 2000, Romania has attracted increasing amounts of foreign investment, becoming the single largest investment destination in Southeastern and Central Europe. Foreign direct investment was valued at €8.3 billion in 2006. According to a 2006 World Bank report, Romania currently ranks 49th out of 175 economies in the ease of doing business, scoring higher than other countries in the region such as Hungary and the Czech Republic. Additionally, the same study judged it to be the world's second-fastest economic reformer (after Georgia) in 2006. The average gross wage per month in Romania was 1855 lei in May 2009, equating to €442.48 ($627.70) based on international exchange rates, and $1110.31 based on purchasing power parity.

In 2009, the Romanian economy contracted as a result of the global economic downturn. Gross domestic product contracted 7.2% in the fourth quarter of 2009 from the same period a year earlier, and the budget deficit for 2009 reached 7.2% of GDP. Industrial output growth however reached 6.9% year-on-year in December 2009, the highest in the EU-27.


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