Romania’s economy in big trouble?

In the past years, there was a huge economic growth in Romania. Romania was among the top EU countries with the fastest-growing GDP rate. Hungary also had a stable economic growth, but it could not compete with Romania in the past years. Now, it seems that Hungary might finally overtake Romania this year, in terms of GDP growth.

It made quite the news recently that Romania was actually doing better than Hungary:

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This outstanding growth in Romania, however, resulted in the decline of both external and internal balance processes, according to a survey conducted by Societe Generale. Romania has to face serious challenges in the future, Portfolio.hu reports.

The Gross Domestic Product (GDP) of Romania increased by 7% in 2017 (which was the best rate in the entire EU except for Ireland). Romania was doing so well that it even exceeded Hungary for years in a row. However, professionals have been anticipating that this seemingly unstoppable growth will eventually stop, and it will have some serious consequences for the country.

As anticipated, in 2018, the economic growth slowed down, and the GDP growth of Romania decreased to 4%. The same amount is estimated to be 3.5 or 3% in 2019.

New taxes introduced

Romania aims to keep the deficit of their national budget under 3%. In order to do this, the country introduced several new taxes, for example, a special tax for companies in telecommunications and in the energy sector. There was also a new tax introduced for banks, who are now supposed to ask for a much higher interest which is way above the relevant reference rate. Thus, banks make more money off of corporations and also the Romanian population, for which they need to pay a so-called “greediness tax”.

Analysts of Societe Generale raised several issues concerning this new tax, and they all agree that it will eventually have a negative influence on the economic growth of the country.

Moreover, this new tax will probably have a destabilising effect on the Romanian economy.

This basically means that the government’s plan to help the national budget deficit will actually do the opposite of that.

Due to Romania’s economic situation, their unit of currency, the Leu, is about to reach a historical low point against the Euro.

It seems that the time has come, and Romania has to pay for its economic policies of recent years.

The continuous economic growth resulted in serious external and internal balance processes, and the national budget also needs fixing. Unfortunately, the country’s plans to fix its economic problems seem to result in an even bigger and faster stop in its economic growth.

Source: www.portfolio.hu