70% of economic growth in first three quarters of 2018, obtained by stocks increase. Foreign exchanges pulled down GDP by 1.6 percentage points

INS recalculated GDP in the third quarter and the first three quarters of the year. Here are the growth data for the Romanian economy, updated… Mai mult

Romanian Leu of 2019: Depreciation rate depends on budget credibility and seriousness

The estimates by economists of most important banks in Romania on the depreciation of the local currency for this year range between 4.73 and 4.77… Mai mult

Romania and energy: Position in European context

Final energy consumption of Romanian industry declined by about 75% between 1990 and 2016, compared to only 25% at the EU level, according to data… Mai mult

Crash signal in foreign trade – export coverage ratio has fallen to 2011 level. And we do not import robots

The trade deficit on November 2018 was EUR 1.567 billion, the second worst monthly performance registered last year. Worryingly, the growth rate of exports compared… Mai mult

Intense M&A activity in 2018 in Romania – Deloitte analysis

The Romanian mergers and acquisitions market reached nearly EUR 2 billion in 2018, according to a Deloitte Romania analysis based on public sources and transactions… Mai mult


Convergence of wages versus price convergence

de Marin Pana , 12.11.2018

The living standard in Romania increased significantly due to an accelerated wage convergence compared to the EU average and the stagnation in price convergence toward the same average – official data on the 2014-2017 period show.

But this trend decoupling between the two types of convergence (which will inevitably occur over time) can no longer continue.

In terms of wages, the major advantage was precisely the relatively low starting point combined with the rapid increase in relative labour productivity per EMPLOYED person (which has doubled in the last 15 years, from 31% of the EU average in 2003 toward 65% in 2017 and in 2014 went through the level of 57% of the same average).


  • Salary convergence vs. prices convergence in some EU states (EU28 average = 100)
  • Year    Salaries           Prices
  • EU28
  • Romania
  • Poland
  • Hungary
  • Czech Republic
  • Italy
  • France
  • Germany


The increase in productivity made possible the coverage of the large gap remained to be closed, in the context of a small labour remuneration share of GDP, both in relation to the Western practice and the situation in former colleagues from the Socialist bloc that joined the EU.

This opportunity is being closed, even though it can still be used in the medium term.

With regard to price convergence, measures taken at the mid of 2010, in the crisis period, allowed afterwards, by the base effect, the lowering of the general level with the reduction of standard VAT from 24% to 20% and then to 19% combined with the general decrease toward the reduced rate on food products, where we hold the European record in terms of share in the consumer basket.

But this is where the problem is. VAT cuts (leaving aside the fact that budget revenues have fallen to the smallest share of GDP in the EU, except for Ireland) have been of a short-term nature and cannot be repeated. The plateau of the price alignment trend towards the EU average went increasingly upwards during 2018.

At an annual average HICP inflation that will go somewhere above four percentage points (4.7% would be the forecast according to the national methodology) we shall add, taking also into account the marginal RON devaluation against the European single currency (estimated to go from 4.57 lei/euro to 4.65 lei/euro), something between two and three percentage points to the ratio between prices in Romania and the European average.

Percentages that will seriously erode real incomes, for the first time in four years when we got used to not really considering either price increases masked by tax cuts or a RON devaluation, small but unforeseen in the forecast scenarios presented last year (from 4.56 lei/euro, November 2017 forecast presented an average exchange rate of 4.55 lei/euro for 2018).


CSMN net average wage forecast (2018-2022)




An interesting coincidence, another four years with a cumulative 34% increase in net average wage (of course, again without any increase in RON/euro exchange rate, but if only stagnated, because expectations of the vast majority of bank specialists slightly tend toward the opposite direction).

Only this time, price convergence (especially in the context of the stability of the exchange rate) will work as clearly as possible. As we can see from the experience of Hungary or the Czech Republic, positioned slightly ahead of us on the way to the West. Or, better and worth to remember, Poland’s experience, which has not plunged into wage increases and maintained prices under control much better.

What we need to remember is that the increase in purchasing power and living standards can be made only to the extent that wages converge faster than prices. For now, it seems natural to us from the position of a country that is catching up. But it would not hurt to see in the case of big European economies, which are also our main trade partners, what can happen as we go to the upper level with the incomes compared to the productivity.

Italy has adjusted incomes quite significantly, without the price reaction to occur to the same extent, and France, which was shyer, continued to have a relative price increase. Not even the European engine, Germany, has managed to raise incomes beyond the price increase.

In other words, once the price convergence induced by the income increase is produced, it will be much harder, if not impossible, to get back to the starting point by lowering incomes (not to mention, if you remember, that in the case of pensions, which are paid also from salaries, it is not possible to do that, for legal reasons). Of course, unless we apply the emergency adjustment to the exchange rate, which would cause us a lot of trouble.

Therefore, in the game between convergence of incomes and price convergence, a game that will run differently over the next four years compared to the previous four years, the dosage of increases will have to be made with much more care, without falling into the error of incomplete induction (if we applied it and that worked without breaking the economic balance, it will work every time).

The result of the game, depending on how able we shall be to do that, and how well we shall know what players to send on the field, will be seen in 2022. When, according to some commendable intentions, we are to have Maastricht indicators updated (without having them lost along the way, now we have our pockets open and are running quite fast) and enter the antechamber for the euro adoption in 2024.

Mergeți în homepage ›

Publicat la data de 12.11.2018

Lăsați un comentariu


Mugur Isarescu: "Ordinance weird thing" reduces monetary policy efficiency, which will not help Government

The National Bank of Romania (BNR) will convoke the National Committee for Macro-prudential Supervision, where the Ministry of Finance will be required to clarify the… Mai mult

World Bank lowered prospects on Romania's economic growth for 2019 and 2020

  Romania's economy will record an advance of 3.5% in 2019 and 3.1% in 2020, down one percentage point from June 2018 forecast, according to… Mai mult

State is borrowing at increasingly higher costs - government bond yield reached 5.33% per year

The benchmark government bond yield jumped above the 5% threshold on Thursday. The Ministry of Public Finance (MFP) attracted RON 300 million from banks on… Mai mult

Iasi - Tg.Mures highway disappeared from Large Infrastructure Operational Programme 2021-2027

The Ministry of European Funds has taken out Iasi-Tg. Mures highway project from the Large Infrastructure Operational Programme 2021-2027 and the Ministry of Transport already… Mai mult

Senate postpones discussions on DNA’s request on waiving immunity of Calin Popescu Tariceanu until February 2019

The Senate has decided that it will put to the vote the decision to waive Calin Popescu Tariceanu's immunity only in the spring session, that… Mai mult

Implementation of 5G technology, a multiplication effect in economy of EUR 4.7 billion - announces Sorin Grindeanu (ANCOM)

The National Authority for Management and Regulation in Communications (ANCOM) launched on Wednesday the National Strategy for the Implementation of 5G Technologies in Romania for… Mai mult

FIC: Amendments on Criminal Codes expose business environment to abuses from civil servants

Some of the amendments to the criminal codes will generate mistrust regarding Romanian state's ability to ensure the legality, stability and predictability of business relationships… Mai mult

European Semester / European Commission asks Romania to correct its medium-term structural deficit by 1% of GDP

Minister Eugen Teodorovici is pressured by the EU to reduce the budget deficit After finding that the Government has done nothing to adjust the deviation… Mai mult

Sovereign Fund gets legal base. Details announced by Minister Teodorovici

The Government adopted on Thursday the ordinance that provides for the general framework for the establishment of a Sovereign Fund. Later, after new talks with… Mai mult

Ford is looking for 1,700 employees to produce EcoSport SUV model

The representatives of Ford Craiova met on Wednesday with mayors of 30 localities from Dolj county in order to stimulate the attraction of 1,700 new… Mai mult

Development strategy / Government squeezes even investment money from its own companies: EUR 120 million from only two entities in energy field

Nuclearelectrica (SNN) and Romgaz (SNG) have calculated the additional dividends to be paid to the state after the Ministry of Finance (MFP) sent to the… Mai mult

DNA, officially: Senate President is suspected of having received a USD 800,000 bribe. Case file opened at a request from Austrian judicial authorities

The case file in which the DNA requested the waiving of the Senate President’s immunity was opened at the request of Austrian judicial authorities and… Mai mult

Illegal state aid / European Commission demands Romania to recover EUR 60 million from CE Hunedoara

Romania has to recover illegal state aid worth EUR 60 million granted to Compexul Energetic Hunedoara, announced the European Commission with a statement released on… Mai mult

Ministry of Finance planned loans of RON 4.74 billion in November. Costs are increasing

The Ministry of Public Finance (MFP) intends to borrow in November RON 4.74 billion, 1.4% more than in the previous month, according to the Ministry.… Mai mult