Romania is set to outpace its struggling neighbors this year, with the International Monetary Fund (IMF) expecting it to grow by 3.1% in 2021. This growth is being driven by support from the European Union (EU), the stability of the leu, and foreign investment accompanying the relocation of manufacturing bases from Russia and Ukraine.
The European Commission’s conservative forecast of 1.8% growth is still ahead of Poland, which is expected to see 0.7%, and Hungary, which has been hit by a slowing economy and high inflation. Romania has become the second-largest economy in Eastern Europe, behind Poland, alongside its neighbors. Gross domestic product (GDP) per capita in purchasing power parity terms will be 74% of the EU average in 2021, up 21 percentage points since 2010, according to recent data from Eurostat.
The average Romanian citizen needs 20 months of net income to buy a new Dacia Jogger station wagon, the same level as Hungary, which has traditionally been considered richer than Romania. Romania has made these changes despite longstanding political instability, most recently when the ruling coalition collapsed in 2021.
Underpinning Romania’s bright prospects is EU membership and good relations with the EU. Romania has already received €6 billion from the EU, while Hungary and Poland continue negotiations with the EU over judicial reforms that will fund a multi-billion dollar pandemic recovery fund. Exceeding subsidies and low-interest loans are withdrawn. Ciuca has said Romania will aim to get more than €10 billion a year out of about €90 billion in EU aid available to Romania by 2027. This corresponds to about 4% of GDP.
The stability of the leu is also one of the factors supporting growth. Leu stands out for its stability when compared to neighboring Hungary’s Forint, which broke record lows several times last year. Due to higher wages on the Romanian side, some Hungarians are already finding jobs in the industrialized western part of Romania.
Romania received 9.39 billion euros of foreign direct investment in the first ten months of 2018, the fastest since joining the EU in the first ten months, helped by companies moving production from Russia and Ukraine to lower-cost neighbors. A 2022 survey by Ernst & Young (E&Y) found that more than half of 101 foreign companies plan to set up or expand operations in Romania, particularly in areas such as supply chains and logistics. Romania ranks fourth in Europe in terms of investment appetite.
Despite numerous obstacles that remain in the Romanian economy, such as huge current account deficits, an aging population, and chronic bureaucracy that hinders infrastructure development, Romania has managed to make impressive economic progress. This progress is set to continue with EU funding, and if all anti-corruption measures are implemented correctly, Romania could become a model of good governance in the region. Romania’s quiet rise is an example of how a country can benefit from EU support and experience an economic boom.
