Slow-paced industrial output growth, increasingly costly imports and an inflation rate being pushed downwards by a tight monetary policy. This is the general picture of an economy that wants to join the European Union in 2007.
"The employee productivity gap between Romania and the ten countries that will join the EU in two months' time is becoming wider by the day, instead of narrowing down," says Graeme Justice, the IMF resident representative in Bucharest.
Beyond the rather "cosmetic" effects of the ROL's real appreciation, which helps to push up the GDP value per capita, the battle for closing the gap separating Romania from the Central European countries should be fought on the field of labour productivity. Still, the dynamics of this indicator is still much too slow, in the absence of bigger foreign direct investment and given the lack of deeper restructuring and modernisation in Romania's industry. "Romania has made 'some' progress in economic restructuring, but this is just the beginning," the IMF official states.
But, under the circumstances, how did Romania manage to preserve the annual growth of industry labour productivity last year? It was done mainly by downsizing - the number of employees in this economic sector dropped by 58,000 last year from 2002. Thus, although the industrial output only grew 3.2% in absolute volume, this still led to a 12.1% surge in industry labour productivity.
"If we look at the annual growth pace of foreign direct investment in Romania, which is much slower than the levels posted by the ten EU candidate countries that will join in two months, we can see a discrepancy which, obviously, reflects into divergent labour productivity growths," says Radu Craciun, senior analyst with ABN AMRO Bank Romania.
The ROL's appreciation is working, for the time being, but it has to be closely followed by economic restructuring. Thus, the annual inflation rate dived to a record-low in February (13.7%), whereas February's inflation was only 0.6%, below the analysts' expectations. This drop (down from 1.1% in January) was greatly supported by the nominal appreciation posted by the domestic currency against both the US dollar and the single European currency. However, inflation is likely to make a comeback in April, when the natural gas price is scheduled to go up.
The National Bank of Romania is permanently making sure that the productivity growth covers both the real salary raises and the real ROL appreciation. Last year, the net average wages went up 12.3 percent in nominal terms.
The International Monetary Fund is also pushing for a lower 2004 budget deficit, down to no more than 1.4% of the Gross Domestic Product. And this may be one of the few safe ways to push inflation down to less than ten percent, as scheduled by the Government and the National Bank. Most analysts estimate the inflation rate to amount to 11 percent by the end of December 2004. razvan.voican@zf.ro
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