Despite GDP rocketing as government splurges on higher public-sector salaries and cuts taxes, Balkan country’s wealth remains about same as it was five years ago
Despite gross domestic product rocketing as the government splurges on higher public-sector salaries and cuts taxes, the Balkan country’s wealth – calculated as citizens’ net assets as a share of disposable income – remains about the same as it was five years ago.
For some, the gains are funding day-to-day essentials including food and clothes – understandable in a country whose living conditions are among the E’’s worst.
Others are splashing out on holidays and televisions.
Fewer Romanians are investing their windfall in long-term assets such as apartments.
Florian Libocor, an economist at BRD-Groupe Societe Generale in Bucharest, says people are behaving like the government’s largess will continue indefinitely.
That is not likely to be possible as the European Commission warns on the sustainability of the budget deficit.
“Citizens haven’t accumulated wealth in recent years – they increased indebtedness based on positive expectations,” Libocor said.
“Many people haven’t even waited to see if the promises materialise, and they consumed more but also accumulated more debt. At one point, a correction is inevitable.”
The EU predicts Romania’s economy will expand by 4.4% in 2018 after eclipsing growth elsewhere in bloc last year.
But the first signs of a squeeze on its citizens are appearing.
Inflation reached a four-and-a-half-year high in December, and the central bank has already begun raising interest rates, which had been stuck at a record low since 2015.
Money markets have been ahead of the curve, pushing up monthly mortgage repayments for some Romanians by about 15% in the past three months.
It may already be too late to set aside enough cash to cushion the blow.