Romania’s economy outperforms rest of EU in fourth quarter of 2020

Loose Covid-19 containment measures in much of Central and Eastern Europe appear to have paid off for the region’s economies, with strong growth in the fourth quarter across much of the region. Romania saw the EU’s highest levels of growth, defying all expectations.

Romania’s economy jumped by a staggering 5.3 per cent in the final quarter of 2020, in large part thanks to the country’s relatively loose Covid-19 lockdown strategy. The expansion of the country’s economy puts it ahead of all other EU members to have so far reported data for the fourth quarter of 2020.

Overall, Romania’s economy shrank in 2020 by 3.9 per cent.

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“Our economy has blown away all of the apocalyptic predictions,” said Prime Minister Florin Cîţu.

“Romania performed five per cent better than all of the initial estimates from international financial institutions, the European Union, and banks. And we will not stop here: this year will be one of reform and investment.”

While Romania’s schools, universities, cafes, bars and restaurants were closed throughout the autumn and early part of the winter ahead of a partial reopening on February 8, shops remained open and there was no ban on travel within cities or around the country. Ski resorts opened on schedule in December, and, with foreign travel all but impossible, have subsequently seen a boom in the number of local visitors.

Upwards revision

Austria’s Erste Group, one of the largest financial services providers in Central and Eastern Europe, has already revised upwards its 2021 growth forecast for Romania to 4.2 per cent, from 2.7 per cent at the end of last year.

“The impact of the second pandemic wave in terms of economic growth was almost inexistent due to milder restrictions compared to other countries,” says Eugen Sinca, an analyst at Banca Comercială Română, part of Erste Group.

“Based on high-frequency hard data, we believe that manufacturing, retail sales and services for companies (including IT) were the main drivers of the fourth quarter’s sequential growth. The contribution of agriculture might have also been positive in the last quarter of 2020. On the other hand, the output in the construction sector was slightly negative in quarter-on-quarter terms, and consumer services dropped sharply, being affected by the Covid-19 restrictions and consumers’ cautious attitude.”

The fourth quarter of 2020 was also good for other parts of Central and Eastern Europe too: Bulgaria (2.1 per cent) and Hungary (1.1 per cent) both unexpectedly recorded growth from the previous three months, according to numbers published on February 16.

External demand

“[Hungary’s] GDP data showed that the second wave of the pandemic and the containment measures introduced in the middle of November had much smaller negative impacts on the economic performance,” according to Orsolya Nyeste at Erste Bank Hungary. “The positive contribution of industry to growth could have even been better, as external demand was strong and – contrary to spring – supply chains remained practically intact. In addition, the performance of construction might also have been somewhat better than expected.

“The performance of services however was mixed, as the indicated positive role of information and communication seems to have managed to offset negative impacts of the lockdown in case of tourism and hospitality.”

Lithuania meanwhile now looks set to be the EU’s best performer for the whole of last year, the country’s economy falling by just 0.9 per cent.

Last week, international ratings agency Moody’s raised Lithuania’s long-term credit rating from A3 to A2 with a stable outlook, while Standard and Poor’s affirmed the country’s existing rating of A+ with a stable outlook.

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