fbpx Modifica setari cookieuri

SIMILAR ARTICLES

Public debt relative to GDP advanced in July as much as throughout the entire Q2, when pandemic reached its peak. Implications

The public debt officially measured by the Ministry of Finance based on the European methodology advanced only in July 2020 almost as much as in… Mai mult

Infrastructure development mega-plan – mega-business for neighbours: Romania must import 1.8 million tons of bitumen

Romania’s big re-launch plan for the next decade places transport infrastructure at the centre of investments, with an allocation of 60% of the total amount.… Mai mult

Budget implementation on S1 2020 – a comparative approach related to 2019

The general consolidated budget registered in the first half of the current year a deficit of about RON 45 billion, equivalent to 4.2% of the… Mai mult

Siegfried Muresan: The EU is considering the possibility to introduce several types of taxes. The only one on which there is agreement is the one on plastic

At the European level, there is an agreement to introduce a “modest” tax on disposable plastic, a first source of income to support the repayment… Mai mult

Long-term interest rate fell below 4%. However, a courageous change of economic vision would be required

Long-term interest rate for Romania fell by almost one percentage point in just two months, according to data released by Eurostat. After increasing up to… Mai mult

Looking into biggest change in estimates of all times: Salary increases – you shouldn’t put in what God’s left out

de Marin Pana 22.5.2017

Financial chart

The 2017 spring prognosis of the National Prognosis Commission, subordinated to the Government, reassessed and doubled the real wage increase for the period 2016-2019.

In short, from 19% a year ago, it has reached 38%, which is the biggest change in estimates of all times.

The record was set for 2017, when instead of a modest 3.0% announced last spring, the institution announced a percentage more than triple, namely 9.9%.

*

  • Salary evolution, related to GDP growth between 2016-2019
  • Year
  • Real salary (%) pp* 2016
  • Real salary (%) pp* 2017
  • Source: National Prognosis Commission, * spring forecast

*

It is noteworthy that these increases in real wages are equal to those of purchasing power, meaning that they consider not only the nominal increase of the amounts paid to employees but also the inflation that would be registered during the period under review. That also depends on the evolution of the exchange rate for the large part of the goods from the consumer basket, which are from imports, for the energy resources and the telecommunications tariffs. As for the interest rates applied to the foreign currency loans, still quite many (over 40%), there is no point in talking.

Of course, important changes in the economic strategy can be considered and it would even be praiseworthy to see the rapid forecast adjustment to match the developments in the economy and the economic policies. Therefore, let’s see based on what economic results we can increase purchasing power with the money mentioned above:

*

  • GDP evolution between 2016-2019
  • Year
  • GDP (billion euros) pp* in 2016
  • GDP (billion euros) pp* in 2017
  • Source: National Prognosis Commission, * spring forecast

*

Big surprise, the same Commission that guesses with an enviable precision the GDP level (see results for 2015 and 2016), maintains almost unchanged the GDP in euro forecasted for 2017 and comes up with minor upward changes for 2018 and 2019, although it sees doubling or tripling growth rates for the real wage. But maybe something exceptional will happen with the euro/leu exchange rate. Let’s see the changes:

*

  • Evolution of the average euro/leu exchange rate between 2016-2019
  • Year
  • Euro/leu exchange rate forecasted for 2016
  • Euro/leu exchange rate forecasted for 2017

*

Very interesting: the exchange rate was already slightly above the forecast (this is why we also have the exact figure of four decimals for 2016), which seems to have a direct relation with the “over-implementation of the plan” in terms of wage increases in the elections year that has just ended. Not much, from 9.6% to 11.9%, but enough to push the exchange rate higher, that is, to the planned estimate of 4.49 lei/euro by 2019.

Now, we have already registered a little more than 4.53 lei/euro in the first quarter of 2017 and we are around 4.45 lei/euro in May. Not that we can immediately make the correlation with the rule of three and not that the nominal wage increases without any relation reported so far to the increase of labour productivity (-0.4% for 2016) would immediately produce effects, but two questions arise with effects on your wallet.

First: Does anyone still believe in the exchange rate forecast for 2017, namely the average of 4.49 lei/euro? Elementary mathematics show that it would require a decline from the current 4.55 lei/euro level to 4.48 lei/euro by the end of the year.

Secondly: If a wage increase recorded as being 23% higher than the previously projected level occurred simultaneously with a three-penny advance of the average exchange rate (actually, less than one percent, which is not a big thing), we wonder how would the rate change against a 230% increase of the salary growth estimate, from 3% to 9.9%?

A level below ten percent, which seems to be very conservative in view of the announcements coming from the Executive and the data already indicating an average +15.6% advance of the purchasing power related to the salaries, in the first quarter of the year, compared to the same period of the previous year.

Why are we interested in the CNP forecasts? Because, as mentioned in their headline, they have been drafted for the convergence program with which the Government committed itself to Brussels. But also as a basis for the commitment to raise the living standards based on certain budget revenues that essentially depend on both the GDP growth and the stability of the euro/leu exchange rate.

Fortunately, or unfortunately, CNP has the habit to guess very well the GDP growth in euro, but unfortunately, or fortunately, misses the nominal wage increases. For example, the average national wage, forecasted in the spring of 2016 to reach the net amount of 2.333 lei only in 2019, has been already exceeded in March 2017 (net 2.342 lei, according to the data recently announced by INS).

But at a 15.6% increase in real wages in the first quarter of this year, if the average of 4.55 lei/euro is confirmed for the whole 2017 (some grumpy people would say pray the Lord to be only that!), the GDP would change from EUR 181.5 billion to just EUR 179 billion, that is, below the previous forecast. Although, based on this economic result that the European Commission also sees as diminished, they supposedly could ensure a salary increase more than three times above what was forecasted a year ago.

If we are to consider the official data presented, the situation is to repeat in 2018 and 2019 as well, when it has been estimated an exchange rate having a major risk to be fictional (pray the Lord not to be like that!), the same 4.49 lei which looks like a marketing price from the retail industry, against the background of doubling salary growth estimates in real terms.

Regarding the fantasist demand for income growth, that can only lead to a popular saying: You can’t put in what God’s left out!

Mergeți în homepage ›

Publicat la data de 22.5.2017

Lăsați un comentariu


NEWS

New Renault boss: “Dacia is a miracle. It's time for the brand to flourish"

Luca de Meo (foto), the new general manager (CEO) of Renault group, considers that Dacia project proved to be a miracle and that no one… Mai mult

Pentagon transforms Campia Turzii unit into a NATO air hub at the Black Sea

A former Soviet airbase in central Romania could become a hub for US Air Force operations in south-eastern Europe, where the Pentagon is seeking to… Mai mult

Nuclearelectrica shareholders approved to terminate negotiations with Chinese for building reactors 3 and 4 from Cernavoda

Nuclearelectrica's Board of Directors has been mandated to initiate proceedings to terminate negotiations with China General Nuclear Power Group (CGN), as well as legal effects… Mai mult

Renault holds expansion of its plant in Romania, 15,000 jobs cancelled at global level

"Putting capacity growth projects planned in Morocco and Romania on hold" - is one of the measures included in the draft plan of Renault Group… Mai mult

Romania is a net importer of electricity in 2020 as well

Romania imported an amount of electricity of almost 796 GWh in the first month of this year, by more than 36% above what it exported… Mai mult

Shareholders of Galati steel plant promise investments of one billion euros

GFG Alliance has committed to invest one billion euros to upgrade Galati steel plant in order to reduce emissions and increase production. Another EUR 1… Mai mult

Transport Ministry announces it has sent to Brussels the financing request for Sibiu - Pitesti highway

The Transport Ministry, as the Intermediate Body in Transport, approved the financing request for the project "Construction of Sibiu - Pitesti highway", Sections 1, 4… Mai mult

Romania and Juncker Plan: EUR 720 million attracted, of which 35% by Transgaz for BRUA

(The map of investment financed through Juncker Plan, by GDP share. Darker colours mean higher shares) The operator of national natural gas pipelines, Transgaz (TGN)… Mai mult

Top 3 reasons why young people leave Romania

Lack of trust in authorities, corruption and low living standards are the main reasons why young people leave Romania. The data is part of a… Mai mult

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