SIMILAR ARTICLES

Draft law: Tax regime for foreign companies’ profits obtained in Romania is changing

The Ministry of Public Finance (MPF) will propose to the Government another emergency ordinance for amending the Tax Code and the Tax Procedure Code, after… Mai mult

Ups! EU economy is slowing down, and that will inevitably affect us

The economy of the European Union recorded in the second quarter of 2019 the worst evolution of the last five years, with a quarterly increase… Mai mult

How we stand compared to Eurozone. Differences between economic indicators

Romania announced its intention to join the Eurozone in 2024. Adoption of the single European currency is not optional but included in the Treaty of… Mai mult

How did Estonia reach the world top in digitalization. INTERVIEW: Margus Noormaa, General Director of the Estonian Information System Authority

Estonia is well-known as a phenomenon of digitalization. On the official website of the European Commission it is mentioned to be „Estonia is probably the… Mai mult

Salaries in companies with domestic capital increase faster but remain half the level in foreign companies. Why

Salaries in domestic companies continue to grow as staff shortage widens, but remain half the level registered in foreign firms, according to an analysis by… Mai mult

Cronicile

Beware of exchange rate! Impact on budget, wage policy and real economic growth

de Marin Pana 30.3.2017

The entire foundation consisting of the indicators forecasted by the National Commission for Prognosis (CNP), an institution reporting to the Government, relies on the assumption of a strengthening domestic currency against euro in four years, between 2017 and 2020. The average exchange rate should be near 4.46 lei/euro in 2017, 4.44 lei/euro in 2018 and 4.42 lei/euro in 2019 and 2020.

Unfortunately, the data illustrating the quarterly evolution of the exchange rate in recent years are not encouraging at all about the possibility to achieve this result.

In 2015 and 2016, the annual average euro – leu exchange rate was similar to the level reached in the first two quarters. In the absence of a significant appreciation of the domestic currency in the second quarter of the year, like it happened in 2014, it is unlikely to end the year with the forecasted level of 4.46 lei/euro (see table).

*

  • Exchange rate evolution between 2014-2017
  • Year    Q1       Q2       Q3       Q4       Average

*

Exchange rate influence on GDP and significant impact on convergence

On the contrary, if the tendency of the domestic currency is toward 4.60 lei/euro in the second quarter of this year (just a minor increase of only one percent compared to the current situation), the 2017 GDP result expressed in the European single currency would not be EUR 182.8 billion anymore (see chart), but EUR 178.8 billion, with a potential average exchange rate of 4.56 lei/euro.

*

  • GDP evolution between 2017-2020
  • Year
  • GDP (bn lei)
  • GDP (bn euros)
  • Leu/eur exchange rate
  • Real GDP growth (%)
  • Real GDP growth (euro, %)
  • Source: INS

*

The idea is not to alarm you unnecessarily; in fact, such variations of the exchange rate are very common in the Western countries. However, their economies are much more stable, can absorb the shocks and have the possibility to offset them.

For Romania, though, a minus of about four billion euros to a relatively modest GDP would not be something with which to play.

The problem is that the entire growth strategy is based on an economic advance much higher in euro than in real terms. More specifically, we can see that there is a major plus of three percent in 2017 and 2018 in the data on which the wage and pension benefits, the tax cuts distribution, etc. are based if converted to euro.

A plus that would diminish, but remain quite significant in 2019 and 2020, which should lead us to an accumulated economic advance of nearly 36% in four years (essential for reducing the disparities with the West) and not just 24%, if we are to make calculations in lei, adjusted to the prices from the base periods.

And so, the provisions on the salary increase between 2017 – 2020 are five percent higher than the economic growth, with an aggregate gross wage growth of more than 40%, unprecedented since the five-year interval 1975 -1980 (when the former dictator insisted on increasing the wages, as promised, despite the damages caused by the earthquake in 1977 and he was forced to borrow and raise the prices afterwards).

… And salaries

*

  • Wage evolution between 2017-2020
  • Year
  • Gross average (lei)
  • Net average (lei)
  • Source: INS

*

These data regarding the wage increase already prove to be exceeded by the reality of this year start, even before other increases announced and/or requested by increasingly larger categories of employees. Although the average gross wage in 2017 was set to 3.131 lei and the average net wage to 2,274 lei, the official statistics announced a gross wage of 3,168 lei and a net wage of 2,300 lei for the first month.

If we were to take the solidity and consistency of the CNP data seriously, we might wonder in which of the following months of the year the wages are to decrease, so that the targeted average earnings considered for building the 2017 budget to still be maintained.

And we should not forget: big investors in Romania come from the Eurozone, keep their accounts, at the group level, and think in euro. In the absence of productivity increases (given the labour productivity decrease of minus 0.4% in 2016, officially announced late last week by the BNR statistical bulletin 1/2017), they can pay higher salaries only in lei, not euro, if they want to continue to be competitive. With the corresponding implication for the euro/leu exchange rate.

Mergeți în homepage ›

Publicat la data de 30.3.2017

Lăsați un comentariu


NEWS

IMM Invest Romania – program implementing rules have been published

The Ministry of Public Finance announces that it has issued the methodological norms for the implementation of the Program for supporting small and medium-sized enterprises… Mai mult

Pollution import and car park expansion: comparisons with the other EU states

Romania is the EU country with the fewest cars in terms of the number of inhabitants, according to data recently published by Eurostat. We appear… Mai mult

Government is trying to save budget deficit: reductions in public administration system, cancellation of bonus for harmful conditions, excise duty on soft drinks

The Government is preparing the public for the first measures aimed at avoiding the budget slippage, which would be applied by the PSD-ALDE government. News… Mai mult

Laura Codruta Kovesi remains alone in the race for European Chief Prosecutor

French Prosecutor Jean-Francois Bohnert will be appointed as head of the European Financial Prosecutor's Office, a position for which he was heard on Thursday, 11… Mai mult

Romania - EU country with highest risk of dying in a road accident, Bulgaria is quickly decreasing number of victims since it built motorways

Romania recorded the highest road deaths in the EU also last year, with 96 deaths per one million inhabitants in 2018, almost double the EU… Mai mult

Latest developments in progress at Health Ministry: Differentiated wages based on performance, competitions organised at a regional level not by hospitals

Sorina Pintea announced on Thursday further new changes that will be brought to the functioning of the health care system, including new rules for employment… Mai mult

ANAF changes selection procedure for liquidators. Main changes

The new order on approval and selection procedures for insolvency practitioners is an important step to a very good direction, industry experts say. ANAF is… Mai mult

Romania loses competition for a seat at UN Security Council. MAE Excuse: Campaign started too late

Romania lost to Estonia in the final vote to get the non-permanent member position within the UN Security Council for the period 2020-2021. On Friday,… Mai mult

Business internationalization / eMAG makes a step to entry five new international markets and targets a business of EUR 2 billion

eMAG hopes to get the opinion of the Hungarian Competition Council over the next two months for the acquisition of Extreme Digital, the market leader… Mai mult

"At a distance from books": 85,000 teachers (one third of educational staff) are graduates of distance learning

Approximately 85,000 teachers are graduates of distance learning (ID) programs, Education Minister Ecaterina Andronescu said at a meeting with school inspectors from Caras-Severin County. The… Mai mult

Mugur Isarescu: We should make a film for Viasat History about treasure in Moscow

A book should be written or a movie should be made and sent to Viasat History about a treasure evacuated to Moscow, as it is… Mai mult

Rhythm of commercial vehicle registration increases 3 times faster in Romania than EU average

Today, the European Automobile Manufacturers Association (ACEA) announced the status of commercial vehicle registrations in EU member states + EFTA in April and cumulated after… Mai mult