Gross domestic product grew at an annual rate of 8.2 percent in the first quarter, the fastest pace since the third quarter of 2006, according to the latest data from the Bucharest-based National Statistics Institute. This compares with 6.6 percentrate in the fourth quarter of 2007.
The rate of growth in the Romanian economy - which is the second-fastest after the 8.6% achieved in Slovakia among the 20 European Union members that have so far released first-quarter reports, may well drive up inflation even further despite the best monetary policy efforts of the central bank. Consumer prices rose a two-year high annual 8.6 percent in April.
Romanian producer-prices, which are normally regarded as an early predictor of inflation, rose at close to their fastest pace since 2004 in April as energy prices increased a weaker leu raised the cost of imported raw materials. The cost of goods produced in factories and mines was up 15.5 percent in April over April 2007. This compares with a 15.6 percent rate in March. Prices rose 1.1 percent on the month, after rising 1.7 percent in March over February.
The central bank, which raised its main interest rate five times since October, has warned that inflation may not slow until the third quarter.The Banca Nationala a Romaniei has raised its Monetary Policy Rate to 9.75 percent currently from 7 percent eight months ago and next meets to decide on the rate on June 26.
The leu gained as much as 0.8 percent to 3.5984 per euro following the news, hitting its strongest level since April 29, up from 3.6257 on May 30.
First quarter was described last month as "the best for the Romanian economy in modern history'' by Finance Minister Varujan Vosganian who attributed the phenomenon to rising wages, increased tax collection and growing foreign investment.
Net wages grew at an annual rate of nearly 18 percent in March while household debt has been surging at around 64 percent year on year.
In April 2008 non-government credit in Romania was up by 2.5 percent from March (or 2.0 percent in real terms), and reached RON 168,734.1 million according to the latest data from the national bank. RON-denominated loans were up 3.4 percent (2.8 percent in real terms) and foreign currency-denominated loans rose by 1.8 percent when expressed in RON and by 3.2 percent when expressed in EUR.
At end-April 2008, non-government credit was up year on year by 64.4 percent, or 51.4 percent in real terms, on the back of the 44.5 percent increase in RON-denominated loans (33.0 percent in real terms) and the 85.8 percent advance in foreign currency-denominated loans expressed in RON (when expressed in EUR, forex loans expanded by 68.2 percent).
RON denominated household credit was up by 42% year on year in April, while household foreign currency-denominated loans were up at an annual rate of 137.7%. The rate of increase in these latter has slowed a little in recenent months from the peak, so the whole process may now be slowing. We will have to wait and see.
Romania's unemployment rate fell in April as farmers and construction companies boosted seasonal hiring because of favorable weather conditions. The unemployment rate fell to 3.9 percent in April from 4.2 percent in March, according to data from the National Labor Agency. Unemployment fell from 4.5 percent a year earlier.
Romania's jobless rate has been falling steadily since last year when it joined the European Union, increasing investment in the nation of 22 million and allowing many Romanians to emigrate to find better-paying jobs in other EU nations such as Italy and Spain. A growing labor shortage and a booming construction industry has helped boost average net monthly wages in Romania by an annual 17.7 percent in March.
Retail sales expanded 11.2 percent from a year earlier, government tax collection rose 44 percent on the year, the construction sector grew 32 percent and increasing job offers lowered unemployment to 3.9 percent.
Vosganian also indicated that the government expects a large agricultural harvest this year, which may further accelerate growth. A drought last year destroyed a third of Romania's crops, shaving more than a percentage point off GDP growth last year, according to government estimates. Romania's statistics institute will provide a detailed breakdown of first quarter economic growth on June 5.
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