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Romania has exceeded 60% threshold of GDP/capita related to EU average: Severe abnormalities in domestic distribution

de Marin Pana , 5.2.2018

Romania has exceeded the 60% GDP per capita related to the EU average, according to data available after Eurostat released the preliminary estimate of the economic growth recorded at the EU and Eurozone level in 2017. The estimate was based on the values communicated by 17 member states that cover 90% of the EU GDP.

Thus, the EU 28 ended last year with an advance of 2.5% (the same for the Eurozone), while Romania will have an increase of more than six percent. The National Prognosis Commission announced 6.1%, equivalent to only 4% growth in the last quarter, after the level of 7% already confirmed for the first three quarters and 8.8% in the third quarter.

Most likely, Romania will reach close to 6.5%, which represents an increase of four percent compared to the EU average. Which, correlated with the starting point of 58.2% in 2016, added in 2017 another two and a half percent to the country’s result, with a solid safety margin for exceeding the GDP per capita benchmark of 60% of the EU average.

Methodological explanations

Data provided by Eurostat have been processed in line with the European System of Accounts ESA 2010 and the signal preliminary results for the fourth quarter of 2017 are based on the values already communicated by 17 member states that cover 94% of the Eurozone Gross Domestic Product and 90% of the EU28 GDP.

The first estimate of the economic growth for the whole of 2017 was obtained by dividing the sum of the quarterly increases in 2017 by the sum of the quarterly increases in 2016, where the values in euro were corrected for seasonality. The National Institute of Statistics would provide the public with the signal estimate for 2017 on February 14, 2017.

It is noteworthy that the calculation of GDP per capita related to the EU average is not made directly in euros but there is a prior adjustment by the price level in that country relative to the EU average price level so that purchasing powers derived from the incomes can be properly compared to each other.

Issue: External gap has narrowed, internal ones have extended

Against this background, the 11 years of the EU membership have led to an increase in the relative living standard, measured by GDP per capita, of nearly 55% (see table). For an average inflow of European fund of 2.8% per year and payments to the common budget of 1%, there is a net benefit of 1.8% of GDP which brought an annual growth rate between 1.2% and 1.6% (interesting “conversion factor”).

*

  • Evolution of GDP/capita in Romania compared to the EU average (% at the parity of standard purchasing powers)
  • Year
  • GDP

*

As we can see (very surprisingly) from the Eurostat data, the gap with the West has diminished even during the economic crisis, and our advance to the 60% phase target, although slowed down after the initial moment, has maintained. We remind that this benchmark has been invoked as a starting point for launching the procedures for euro adoption, but things have become complicated in the meantime.

By placing the 21 percent recovered in relation to an average, let’s say 1.4% per year as additional economic growth (1.2% -1.6% were the values indicated until 2016), it means that roughly two thirds of the gap decrease represent the result of what we did, but one third was due to the influences that came along with the European accession.

Simply put, the EU membership and the access to the single market have boosted by 50% our effort for progress. Which, at a first glance, is a notable success of the strategic vision that brought us (fortunately) to the EU in 2007.

In a closer observation, though, two types of problems can be identified that have affected this idyllic picture.

First, the development did not take place evenly, and inequalities since the start on the road of the prosperity induced by the “consumer society” have widened between the country regions and within, between neighbouring counties.

Secondly, the material part of the capacity to purchase goods and services at an individual level went far beyond the state’s capacity to provide quality social services (healthcare, education, etc.) and a Western-level communications infrastructure. From this point of view, we are far from the 60% level that will be displayed as a benchmark.

Noteworthy, while the deepening of inequalities has brought, for example, Bucharest to a GDP per capita (by the purchasing power parity) above Berlin or Lisbon, the increase in inequalities between the richest 20% of Romanians and the poor fifth of the population up to a ratio of over 8 to 1 resulted in the economic success being felt as total by some and almost close to zero by others.

The mid-term BNR estimate for the interval until 2022 shows that we need a 95% rate in the absorption of the European funds to obtain an additional 1.7 percentage point in the economic growth, to reach a potential GDP of 5% (reference value for Romania for a growth in a context of stability).

So, the 50% increase in our efforts based on the European money will be maintained if we have the intelligence and the strength of mind needed to access them correctly. We could also make the moral effort to redistribute in a somehow more equitable manner the benefits obtained at the regional and personal level.

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