Romania tops economic negatives in Central and East Europe

With an 8% lower GDP in 2009, Romania gets in front of Lithuania, Latvia and Estonia in a central and Eastern Europe top 10, according to a World Bank analysis published on Wednesday, October 28. Regarding the budget deficit, Romania is only behind Latvia and Lithuania. The analysis also shows that Romania is the only country of the 10 considered which adopted only one measure in response to the economic crisis, addressing the labour market, out of a 9 measures set stipulated in the document.

The World Bank report analysing the UE10 economic situation (that is in Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) launched on Wednesday, October 28, reads that when the crisis burst, the economic activity on the UE10 financial markets stabilised.

Nevertheless, most of the countries are undergoing a strong economic contraction this year and the recovery seems to be weak and unequal, the cited document shows.

The GDP contraction: Romania ranks 4th

The future economic increase is expected to be lower than what it was before the crisis. The region is forecast to go through a general 4.2% contraction in 2009, 1% more in 2010 and 3.6% in 2011.

The biggest drops are expected in 2009 in Latvia – 18%, Lithuania – 18.5% and Estonia – 14%. Romania is next, with 8.5% according to the IMF or 7.7% according to national authorities. The smallest GDP shrinkage will be recorded in the Czech Republic – 4.3%, followed by Slovakia and Bulgaria.

Budget deficit: Romania ranks 3rd

The World Bank analysis indicates that the UE10 budget deficits are expected to double in 2009 and 2010 against the initial estimates. According to the IMF prognosis, the increase will be from 2.7% of the GDP in 2008 to around 5.8% in 2009 and 6% in 2010. Except for Bulgaria, all the states in the region will go over 3% of the GDP in 2009, some of them with a significant difference.

Latvia, Lithuania and Romania expect the biggest fiscal unbalances, but the deficits will be high in the Czech Republic and Poland as well. These deficits will stay high in 2010 as well and possibly on the medium-term. Only Bulgaria and Estonia estimate that they will keep their deficits under 3% in 2010, the document goes on to show.

Fiscal-budget measures: Romania follows the regional trend

In the face of income drops and public spending pressure, the UE10 states adopted substantial measures to adjust fiscal policies. Except for Bulgaria and the Czech Republic, all the other UE10 states adopted budget supplements to allow for bigger budget deficits. Except for Poland, Slovenia and Slovakia, all UE10 countries froze or cut budget salaries in 2009 or 2010 as well and some states tried to limit the pension increase. Romania is not among these, according to the report. Income cuts in the public sector were implemented or planned in the Baltic States, Bulgaria, Poland and Romania.

To increase the budget incomes, five of the 10 regional states increased or will increase the VAT and direct taxes. Romania and Poland increased only the latter and Poland will see its VAT going up in 2010. Bulgaria did nothing in this sense.

Labour market support: Romania bottoms the top

In regards to the measures adopted for the labour market in response to the economic crisis, Romania is the only one of the 10 who managed to adopt just one single measure from a list of nine analysed in the World Bank report. This addresses the „incomes’ support – the generosity and length of the unemployment benefit”.