Information and communications did not contribute to GDP increase in H1, having an unchanged share of 7.8% in GDP formation, with a stagnating volume of activity compared to last year’s same period, according to NIS data.
The stagnation is due to an accumulation of external factors, as well as last year’s amendment of the Tax Code. Mihai Matei, member of the Employers Association of Software and Services Industry (EASSI) Board of Directors, told CursdeGuvernare.ro that this market was subject to corrections and pointed out that Romania is losing competitiveness in the region due to the elimination of tax facilities.
To reiterate, starting November 1, 2023, IT professionals pay income tax for gross salaries exceeding RON 10,000. They are however exempt from the mandatory contribution to the Pillar 2 pensions system, and, if they wish to continue contributing, they must request this formally.
The well-below-expectations result follows the decline in the second quarter, when volume saw the index fall to 98.2 against Q2 of 2023, confirming the loss of the double-digit advance recorded by the sector in recent years.
The “miracle” of Romanian IT is fading as the sector loses competitiveness in the region
Mihai Matei (photo) says it was expected the evolution of this industry would not keep the pace of past years, noting that NIS data refers to Information and Communications.
The results are below the optimistic forecasts of recent years due to general mistrust and taking into account last year’s modification of the Tax Code which generated a correction felt in the market at the level of services demand and in the relaxation of the labor market.
If two-three years ago everyone was making growth plans, especially in the field of technology, the present brings a feeling of uncertainty and anxiety about the future. There are several reasons for this – the global context, the war in Ukraine and changing work habits.
Industry falls, so does the services sector
“IT is a support industry and when industry decreases, services are the first to be affected”, explains Mihai Matei.
Romania, exporting industrial products for Western companies, strongly felt the setback of big partner economies, especially Germany. Industrial production, as adjusted series depending on season and working days number, followed a downward trend since the beginning of the year, with a drop of 0.9% against the first half of 2023.
Industry managers reported a decline in new orders in the last months, but forecasts concerning production have improved so that expectations remain unclear.
The impact on IT of industry’s downturn is seen in the indicator dynamics. The production index of turnover for market services provided mainly to enterprises (with 2021 as base) dropped in a sawtooth pattern from the 177.7 record in December, 2023, to 143.4 in June, 2024.
Global waves of layoffs, felt in Romania as well
Romania was not able to escape the reverberation of tech companies’ global restructuring and the effect of industrial production collapse, as shown by NIS statistics on another essential indicator – the number of employees in IT.
Oracle, NTT Data Romania, Endava and Cognizant have already made the first restructurings, while recruitment companies say hiring has been below parameters in recent years, with some companies putting a stop to hiring altogether.
As of October 2023, when Information Technology services activities had reached a record of 147,900 employees, their number has dropped to 145,600 professionals in the field. Out of the nine months, only one (April) recorded a modest positive figure.
Despite monthly losses being small, they come as a first after years of constant and significant growth.
Tax Code amendment decreases Romania’s competitiveness
Those in the field of IT hoped the sector would go up approximately 10% this year compared to 2023, but the problems occurred as a result of international trends were doubled by a Government measure with serious consequences, say IT entrepreneurs.
The elimination of facilities granted to this sector comes after “sustained yearly increases of salary costs”, explained Mihai Matei.
The wages increase in order to compensate the losses incurred by the Tax Code modification has led to price increases generating a diminishment in competitiveness compared to other states in the region, says Mihai Matei: “Romania is not as competitive in terms of prices compared to other countries in the region, like Poland, Hungary, the Czech Republic, Ukraine and Bulgaria”.
Romania, biggest annual drop in services in June
The collapse of services in Romania was over 15% compared to the month of May, while the average decrease in the EU was stood at 0.9%.
In June, Romania recorded the second largest annual drop in the EU in the production of services (-6.6%), after Greece (-6.7%), but before Denmark (-4.9%), according to seasonally adjusted data of Eurostat.
Of member states with available data, the biggest annual increases were recorded by Malta (+20.5%), Lithuania (+8.6%) and Luxembourg (+6.5%).
In the EU, Information and Communications went up 3.8% in June yoy and fell by 1.6% against the previous month of May, 2024.
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