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Romania and Cyprus had the most substantial economic growth in the EU in the first quarter of the year, as compared to the previous three months, according to preliminary estimates released on Wednesday by the European Statistics Office. In figures, thanks to a 1.6% growth rate, the two countries are the EU leaders, followed by Spain and Bulgaria with 0.9% each, Slovakia - 0.8%, and France and Hungary - 0.6% each.
At the opposite pole we find Lithuania, Estonia, Greece and Finland, which have reported decreases. The year-on-year rate Romania has reported, 4.2%, is also the largest in the EU.

However, the geopolitical context requires special attention. The European Bank for Reconstruction and Development says East Europe should strengthen its capacity to withstand shocks, as the countries in the region risk being affected by the political and economic problems in Russia, Ukraine and Greece. Central European countries enjoy an economic recovery supported by domestic demand. However, bad loans are still a problem, while Russia and Ukraine remain in recession, which might affect growth in other countries, says the
EBRD. In addition, it is impossible to estimate the impact of the Greek exit for its neighbouring countries, given that Greek banks are operating in countries like Bulgaria and Romania.
Beyond political promises, Bucharest needs to take concrete social and economic measures to support underprivileged people.

After an increase a Romania’s GDP last year by 2.9% in real terms compared to 2013, one of the highest economic growth rates in the EU, the economic forecasts for this year in Romania indicate a growth of 2-3%. The government, for example, provides in its state budget for an economic growth rate of 2.5%, a cautious target which will nevertheless force a growth rate of more than 3%, depending on external factors, Cristian Socol, an advisor to the prime minister told Agerpres agency. In his opinion, the budget is again focused on investment and the creation of new jobs. “Expenditure dedicated to investment is by 24% higher than in 2014. The 2015 budget also encourages the private sector by increasing co-funding for the absorption of European funds, state guarantees and state aid schemes, more support for farmers, concrete facilities for foreign investments with added value, the development of industrial and technological parks and incentives for technical education”, said Socol.

The 2015 state budget provides for a deficit level of 1.83%, as agreed upon with the International Monetary Fund and the European Commission, and an average annual inflation rate of 2.2%. The market research company Business Monitor International estimates that the Romanian economy will grow by more than 3% this year and in 2016, based on the transition from export-based growth to growth generated by domestic demand. The National Forecast Committee expects an economic growth of 2.5% for this year. The figure is closer to the estimates of the European Commission and the International Monetary Fund of 2.4% and 2.5%, respectively, but below the growth rate of 3.2% predicted by the World Bank in June 2014.

Economic analyst Constantin Rudniţchi speaks about what happens in the private sector: “In the private sector things still do not work as well as we would like them to, or as the macroeconomic parameters indicate. In other words, this economic growth that we have been talking about a lot recently, does not necessarily transfer into the private economy. We are in a paradoxical situation, as figures indicate, there is a lot more stability in the budgetary sector and sometimes even the salary increases come from this sector, rather than from the private economy. This is a proof that the real economy is not yet working properly, that those macroeconomic increases do not translate in real data, that many economic sectors probably still experience difficulties, businesses are affected, they either fail to grow or they grow very slowly, and entrepreneurs are very careful about the salaries they pay to their employees. Although the industry as a whole accounts for roughly 30% of Romania’s GDP, there are only some industrial sectors with good performances, or even specific companies in those sectors, particularly exporting companies and those companies which have substantial sales on the domestic market, namely companies in the oil sector, natural gas sector, the energy sector in general.”

We should also note that Standard & Poor’s rating agency expects Romania’s GDP to grow by an average 2.7% in 2015 – 2017, while Fitch estimates a 3% annual growth rate for 2015 – 2016, as a result of resumed investments, among other factors.

On January the 1st, 2014 Romania officially granted foreign citizens the right to directly purchase farmland.  Prior to this date, foreign citizens were allowed to buy farmland in Romania only after setting up a Romanian firm. Experts have warned that the purchase of farmland, by foreign citizens, will increase significantly and that the state should thoroughly control this type of transactions. In 14 years alone, 3 million hectares of farmland have been purchased in Romania, which means that a third of Romania’s fertile land is now owned by Italian, Danish, German, Norwegian, Dutch, Hungarian and Lebanese citizens.
Officially, companies running on foreign capital have already bought 1 million hectares of farmland, and have signed lease contracts for another 2 million hectares.According to Laurentiu Baciu, head of League of Romanian Farmers' Associations, foreigners cultivate land in Romania, taking advantage of the fertile land, the small price per hectare and the cheap labour force but sell the crops in the countries they come from. There, the wheat Romanian is processed in specialties or used for animal feed, then exported to Romania and sold to Romanian consumers for a prices bigger than the domestic ones.

Most foreign investors bought fertile farmland in the Calarasi, Ialomita and Banat regions. Italian investors have particularly invested a lot, purchasing some 250,000 hectares of land, most of which in Western Romania. High on demand are plots of land that are pooled together and highly productive. The hesitation of landowners and farmers in selling their small plots of land, inherited from their parents, makes farmland price report a constant upward trend. For instance, in Intorsura village in Dolj county, prices for arable plots of land have increased from 600 euros some years back to 1,500 euros in poor regions, or 2,000 or even 3,000 euros for  productive and abundant farmland.
Farmland in Moldova and northern Transylvania is cheap, but too scattered for an investor to be able to buy large tracts. Maybi for this reason, there are few agricultural operations near Salaj, while the biggest farmers there are foreign business people who bought large areas of land in the 1990s.

Starting April, farmland is to be sold under new regulations. Romanians must observe a new set of procedures in order to be allowed to sell their land. First they must notify the local town hall with respect to their intention to sell, while the sale cannot be completed any sooner than 30 days. The seller must specify a price, while the town hall will make the price public, informing co-owners, the family, landholders, neighbors and the entire village. They have priority rights to buy the land. Romania has some 14 million hectares of farmland at present, of which 10 million hectares in use.

For the whole of 2013, Romania’s GDP, meaning the total of goods and services in the overall economy, went up by 3.5% against 2012, according to the National Institute of Statistics.
Those are positive signals, which should also be sustained for this year and the next, as Prime Minister Victor Ponta put it. He claimed that this year Romania would save 2 billion Euros when taking out loans on financial markets. He also said that, starting on 1 July, there were plans to reduce social security contributions, but most likely the measure to be taken would be exempting reinvested profit from taxation:
“Things went well in 2013. It went well in terms of economic growth, deficit, European fund absorption, and of course, in 2014 we may continue to boost measures for social balancing, pensions, wages, and for the private industry. Rising exports and growing industrial output were very important. We are on the same growth trend. Of course we can afford to go ahead with such measures when things go well. We saw investments grow in 2013 as well, therefore exempting reinvested profit from taxation is a feasible objective.”

Professor Dan Armeanu from the University of Economic Studies of Bucharest says that unfortunately, the economic growth is not reflected in the pockets of the population:
“Right now things are good. We have a very good marcroeconomic stability, and here we can go into details: one of the highest economic growth rates in the EU, a small public debt, in the context of the European crisis, a low inflation rate, which is on account of the good agricultural year, an unemployment rate within reasonable limits, much lower than the EU average, and the lowest current account deficit of the last 20 years. In 2013, the good farming year saved the economic growth, and impacted inflation. Here we should add exports, because they developed a lot based on exports outside the Eurozone, and that would be very good for the future economic growth if it becomes permanent. The problem is that this economic growth, unfortunately, is not reflected in the pockets of the population.”

The European Commission anticipates a 2.3% growth rate in the Romanian economy for 2014.

In spite of the fact that international financial institutions, the Romanian government and economic analysts estimated at the start of the year that Romania will register an economic growth rate of 1.6% in 2013, they have recently revised upward the growth rate. For instance, the International Monetary Fund has improved the economic forecast for this year to 2% and to 2.5% for 2014, against the backdrop of bigger exports and a better agricultural output than in 2012.
The IMF estimates that Romania’s current account deficit will further decrease to 2 or 2,5% of the GDP this year, and the inflation rate will also go down by the end of the year, within the limits targeted by the National Bank of Romania.

The head of the IMF mission to Romania, Andrea Schaechter, has said that “as regards the fiscal policy, the Romanian government is determined to achieve a gradual fiscal consolidation.Once the budget revision announced, the government made public its decision to reach a deficit of 2.3% of the GDP on cash and 2.4% on the European System of Accounts (ESA) this year, as well as a structural deficit below 1% of the GDP until 2015”, says Andrea Schaechter. She has mentioned that the fiscal policy will be supported by institutional reforms, including measures to stimulate medium term planning, develop the administrative capacity, speed up the absorption of European funds, consolidate fiscal administration and governance and ensure a better control of arrears.
Nevertheless, according to the September report issued by Economist Intelligence Unit, Romania’s economy will go up by 2.5% in 2013, which “mirrors the situation in the Euro zone, with the growth rate expected to increase considerably in the 2014-2017 period, up to an annual average rate of 4%”.

The vice-president of the European Investment Bank, Mihai Tanasescu has said that in order to ensure economic growth, which is essential to absorb European funds, Romania should take some steps: “We stand a big chance, an unique chance that other countries don’t stand, namely the opportunity to attract more European funds, to be able to use cheap investment money, such as those coming from the European Investment Bank, to be able to use resources for big projects, so that the economic growth rate reaches Romania’s potential, of 3-4%. This thing is achievable, in 2-3 years’ time. This potential can be reached.”


According to the aforementioned report drawn up by Economist Intelligence Unit “a better absorption of European funds will contribute to the investment in infrastructure and subsequently might lead to an increase in Romania’s exporting potential on the long term. Romania has obtained structural funds worth 22 billion Euros from the EU budget, for the following budgetary term. Romania will also receive funds for agriculture, worth 17.5 billion Euros in the 2014-2020 period, under the Common Agricultural Policy, which is a significant increase from the 13.8 billion Euros in the 2007 – 2013 period.

The Prime Minister Victor Ponta on Tuesday made public the economic results registered by Romania in the first quarter of the year. Figures show that exports increased significantly, by 8%, and the country had the lowest

deficit of the trade balance in the past 10 years (some 200 million Euros). Therefore, Romania managed to meet the deficit target agreed upon with the International Monetary Fund.
The industrial output also increased by 4.6% in the first two months, and VAT returns, excise duties and income taxes went up by more than 10% as compared to the same period of last year. In exchange, the Prime

Minister also announced the bad news of a significant decrease in profit taxes. In his opinion, the insolvency law should be amended, because there are many companies that are unable to ensure a crediting flow and fail to

meet their obligations to the state budget and to their suppliers. Such companies fraudulently go into insolvency and no longer pay taxes just like other firms which operate in the economic market.

The Prime Minister has said the government should amend the insolvency law, to help companies that are truly insolvent and to penalise those how fraudulently go insolvent.

As for the privatisation of the state-owned railway corporation, CFR, and the natural gas carrier, Transgaz, Victor Ponta has said there is a significant over-subscription of their shares, and this is a sign of confidence and of

a development potential. He has added that the current budget discipline might be toughened in the ensuing months, and this is a guarantee that the Romanian economy might continue to follow an upward trend.

After an excellent farming year in 2011, when the cereal output increased by some 25%, as compared to 2010, amounting to some 21 million tons, the output in 2012 has dropped, mainly because of the drought in summer. In 2011, the maize output stood at 11.7 million tons, and that of wheat at 7.1 million tons, Romania being the second and fifth largest producer of maize and wheat, respectively, in Europe. Last year, agriculture was an important engine of the economy, contributing 0.7 % to Romania's economic growth rate of 2.5% in 2011.
The State secretary with the Romanian Agriculture Ministry, Daniel Botanoiu gives us information on this year's wheat output and refers to the quality of crops : "We've registered a 25% drop in the wheat output, as compared to 2011. The maize crop was most affected, but in different degrees from 30 up to 100%. This is not only the case of Romania, just take a look at the countries which boast a developed agriculture, for instance the US. Look at Russia and the Ukrainewhich provide consistent subsidies to agriculture. This year, we registered the highest temperatures in the past 60 years; Romania registered temperatures above 33 degrees Celsius for more than 35 days in a row, which considerably impacts the development of plants. The Agriculture Ministry does not set prices nor does it intervene on the market. But I can say something else, that is we've obtained the best quality wheat in the past 25 years.

The good news for Romanian farmers comes from Brussels though. Romania will benefit, following a proposal forwarded by the European Commission, from increased budget allocations under the Common Agricultural Policy after 2014. The European Commissioner for agriculture, Dacian Ciolos, explains: "We are talking about 3 billion euros worth of funds for the 2014-2020 period that will go into direct payments in Romania".
Romania is one of the few member states that benefit from an increase in budget allocations under the Common Agricultural Policy and this is money that goes directly to farmers, money that can contribute to boosting farmers' welfare and to developing the Romanian rural areas, the European Commissioner also added.

The National Institute of Statistics (NIS) announced that investments in the economy rose in the first semester, compared to the same period last year, by 20%, to 28.89 billion lei, after an advance of 19.5% in the second quarter compared to April-June 2011. In the second quarter, investments regarding the equipment (including vehicles), increased by 28%, and new constructions, by17.1%, but decreased by 3.7% to other expenses category.
In a statement of the NIS it is said that "compared to the second quarter of 2011, in the second quarter of 2012, there is an increase of the percentage of equipment (including vehicles) in total investment by 1.7 percentage points and in new constructions by 0.2 percentage points. The share of investments in other expenses decreased by 1.9 percentage points".

Investments that have materialized in new constructions summed 14.925 billion lei in the first semester, representing 51.7% of the total, compared to 51% in the first semester of 2011. Investments in machinery and transport equipment summed 11.715 billion lei, representing 40.5% of the total, compared to 39.8% in the first semester of the year.
Branches which registred a higher volume of investments are in industry and commerce / services (wholesale and retail trade, the repair of motor vehicles).
National Bank data shows that foreign direct investments had a decline of 28.9% in the first semester, reaching 621 million Euro.

Romania is the 6th most attractive European country for investments over the next three years, according to the 2012 report „The European Attractiveness Survey” conducted by the consulting company Ernst & Young (E&Y).Thus, Romania is more attractive than the Czech Republic, Turkey, Switzerland, Netherlands, Italy, Spain and Sweden. The first five positions in the ranking are occupied, in order, by Germany, Poland, United Kingdom, Russia and France.

Despite the fragility of the Eurozone economy, investment flows to Europe continued to grow in 2011, the number of investment projects is considerably higher than before the crisis, rising by 2%, from 3757 in 2010, to 3906 in 2011, and the number of jobs generated by foreign direct investments increased by 15%.
U.S. remains the largest investor in Europe, developing 1028 projects, which represent 26% of the total. The number of investment projects developed by the U.S. increased by 6% in 2011, reaching the highest level registered by the Ernst & Young’ survey in the past 10 years.

Investors are quite confident in Europe's ability to overcome the complex and multiple difficulties that it faces, so Western Europe is considered the most attractive destination for foreign direct investments (FDI), after China, while Central and Eastern Europe ranks third.

The economics of Central and Eastern Europe lead regarding the investments in manufacturing industries. Romania, Serbia, Slovakia and Czech Republic have attracted 53% of the new jobs created in the automobile industry. These countries have attracted large projects that have competitive advantages of costs and trading partners like Germany, where the most important industrial clients are.

Professional services and software production sectors have received the most FDI in Europe, with an increase of 19% and 15% in 2011. Together, these two sectors have attracted 28% of all projects developed last year,

generating over 16,000 new jobs.
The number of FDI projects increased also in the automobile industry, creating the largest number of new jobs: 37,790.
Sectors that registered the largest decline in 2011 were financial intermediation services, which decreased by 16%, and electronics, which fell by 8%.

For Romania, the National Bank of Romania data shows that foreign direct investment in 2011 reached the last nine years minimum, 1.917 billion €, and continued to decline in 2012 to 490 million € after the first four months.
But Romania has the advantage of a promising growth rate of GDP compared to Europe's and a valuable human capital, more investors being attracted by the renewable energy sector.
E&Y announced that the estimated value of mergers and acquisitions completed in the first five months in Romania is about 800 million dollars, almost double than the level recorded in the same period in 2011. transactions whose values have been announced by the parties –only- were of  330 million $ compared to  216 million $ in January-May 2011.
Extrapolating, E & Y estimates for the first five months a total market of  798 million $ compared to 408 million $  in first five months of 2011.

The National Institute of Statistics shows Romania’s exports amounted to 45 billion Euros in 2011, registering a 20.5% increase, as compared to 2010 and the volume of imports increased by 16.7%, up to some 54.7 billion Euros. If we draw a line, Romania’s trade deficit stands at some 9.7 billion Euros, close to the level registered in 2010. As regards exchanges of goods within the EU, in 2011, the volume of exports stood at 32 billion Euros and of imports at 39.7 billion Euros, accounting for 71.1 % of the total volume of exports and for 72.6% of the total volume of imports. In 2011, Romania’s exports to non-EU countries continued to follow an upward trend. A significant increase in the volume of exports to Canada was noticeable in 2011, especially in the field of machinery, electrical devices, boilers, nuclear equipment and spare parts for planes.

More spare parts for cars and chemical products were exported to the US. The volume of exports to Brazil also increased, consisting mainly in cars, spare parts for cars, rolling stock and oil-field equipment. The volume of exports to the Russian Federation, the Ukraine and Turkey was also on the rise. However, in December 2011, an increase of only 0.2% was registered in the volume of exports, as compared to December 2010, because the “Nokia” plant in Cluj County was closed down, the Finnish cell phone producer being the second largest exporter in Romania in 2011, after the “Automobile Dacia Groupe Renault”. However, economic analysts say the place left vacant by Nokia, in terms of exports, will be filled by the Italian company DeLonghi which took over some of the production units previously held by Nokia in Cluj County. Additionally, the German car part producer Bosch has made public its intention to make an investment in Romania.

In 2010, Romania’s main companies which exported products to EU member states were “Automobile Dacia Groupe Renault”, “Nokia Romania” (which has withdrawn from Romania), “Honeywell Technologies”, “OMV Petrom”, the “Daewoo” shipyard in Mangalia, the tyre producer Continental Romania, the “ALRO Slatina” aluminium works and the company “Rompetrol Rafinare”, which is held by “KazMunaiGaz”, a state-owned company from Kazakhstan. The main companies which exported products to non-EU countries were the “Arcelor Mittal Galati” steel works, “Rompetrol Rafinare”, “Nokia Romania”, “Automobile Dacia Groupe Renault”, “OMV Petrom”, “Petrotel Lukoil”, the “Holzindustrie Schweighofer” wood working plant and “Azomures” chemical works in Targu Mures.

Romania’s products are mainly exported to Germany, Italy, France, Turkey, Hungary, Bulgaria, the United Kingdom and Spain. Along the same line, Romania imports products mainly from Germany, Italy, Hungary, France, China, the Russian Federation, Austria and the Netherlands

In its annual report for 2011, the rating agency Moody's anticipates that Romania's GDP will grow by 2.2% this year, with the acceleration of the absorption of European funds, while inflation will remain close to the target of the Central Bank in Bucharest.
 
According to Moody's, the uncertain economic situation in the eurozone against the backdrop of the crisis of public debts, affect, however, the prospects for economic growth of Romania. The Agency notes that approximately 70% of Romania’s exports go to European countries, and a slowdown in the rate of growth in Europe would also undermine the growth rate in Romania.
The analysis also pointed out that a faster absorption of European funds and the growth of domestic investment should offset the decline in exports, maintaining economic growth over the 2% top in 2012.
 
Inflation, which hit in September and November, two new lows since 1990, dropped to 3% in December, Moody's currency, and will maintain the same level even at the end of this year. The document also mentioned the possibility that the fiscal deficit registers a fall below 5% of GDP in 2011, in accordance with the target of the government. On the other hand, about 80% of Romania's banking sector is controlled by foreign banks. With the easing of inflationary pressures, the National Bank will relax monetary policy conditions, intent pointed out by the recent reduction in key interest. The Central Bank has lowered the interest of monetary policy of 0.25% to 5.75% in November after he had made a similar reduction.
 
Moody's assigns Baa3 rating to Romania, with a stable outlook, supported by the relatively low level of public debt, access to external financing and the prospect of a promising economic growth on medium term. All this can compensate for the population’s low income compared to other countries in the region, the large deficit in the balance between savings and investment, fiscal pressures and persistent poor performance of public investment and state-owned companies.

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