by Lidia Moise
BUCHAREST, Feb. 14 (Xinhua) -- The Romanian economy posted the highest expansion in the European Union in 2017, with a robust increase of the gross domestic product (GDP) by 7 percent, driven by strong consumption, official data revealed on Wednesday.
The National Institute of Statistics released an initial estimate, but failed to elaborate on the details of the GDP's structure.
Previous data, however, suggested a strong increase of the industrial production which rose by 8.2 percent year-on-year in 2017 versus the 1.7 percent in 2016, backed by strong export orders.
The economy's robust growth was essentially driven by a steady rise of consumption, which boosted retail sales by 10.7 percent in 2017, due to extraordinary performance during the second half of the year, said Anca Maria Negrescu, senior economist at Unicredit Romania in a earlier research note.
The consumption was fueled by a strong increase in the average net earnings which rose to 2,629 lei (697 U.S. dollars) in December 2017, lifting the average for the year to 2,382 lei, noted Negrescu.
Albeit the impressive record, last year's expansion was still below market expectations, due to a slowdown of the internal demand in the final quarter of 2017.
"Hefty historical data revisions led to a full year growth of 7.0 percent versus ING's forecast of 7.1 percent. The fourth quarter of 2017 also marked a significant sequential slowdown to 0.6 percent quarter to quarter versus an average quarterly growth rate of 2.0 percent for the first three quarters of 2017," noted Ciprian Dascalu, ING Romania's chief economist in a report to investors on Wednesday.
Romania's economy grew at a slower-than-expected 0.6-percent annual pace in the October-December quarter as strong exports failed to fully compensate for increasing imports, on relatively weaker domestic demand in the last quarter.
The exports rose by a solid 9.1 percent in 2017, as compared with the previous year, but the stronger pace of imports, which grew by 12.2 percent in the same interval were supported by a corresponded increase in wages.
"On the demand side, it is likely to see both investments and private consumption softening in the last quarter of 2017. It appears that higher interest rates and inflation, weaker currency and uncertainty about future income due to fiscal changes weighed on the consumer sentiment," Dascalu said.
"We have noticed that consumer morale had the sharpest quarter to quarter drop in the fourth quarter of 2017 versus since the unfolding of the Great Financial Crisis," Dascalu said.
Despite the robust growth, the economy gives reason for both optimism and caution.
According to Fitch Ratings associate director Kit Ling Yeung, the economy's expansion was boosted by a strong fiscal impulse that increased the risk of overheating.
"With the economy operating above capacity, further fiscal easing risks increasing macroeconomic imbalances, potentially increasing inflationary pressures, weakening competitiveness and widening the current account deficit, which we project to average 3.4 percent of GDP in 2018-2019, from 2.3 percent in 2016," noted Kit Ling Yeung.
