ROU - Economy

Economy

With a GDP of around $267 billion and a GDP per capita (PPP) of $12,476 for the year 2011, Romania is an upper-middle income country economy and has been part of the European Union since 1 January 2007.

After the Communist regime was overthrown in late 1989, the country experienced a decade of economic instability and decline, led in part by an obsolete industrial base and a lack of structural reform. From 2000 onwards, however, the Romanian economy was transformed into one of relative macroeconomic stability, characterised by high growth, low unemployment and declining inflation. In 2006, according to the Romanian Statistics Office, GDP growth in real terms was recorded at 7.7%, one of the highest rates in Europe. Growth dampened to 6.1% in 2007, but was expected to exceed 8% in 2008 because of a high production forecast in agriculture (30–50% higher than in 2007). The GDP grew by 8.9% in the first nine months of 2008, but growth fell to 2.9% in the fourth quarter and stood at 7.1% for the whole 2008 because of the financial crisis. Thereafter, the country fell into a recession in 2009 and 2010, where the GDP contracted −7.1% and −1.3% respectively. It is estimated by the IMF that the GDP will grow again by 1.5% in 2011 and 4.4% in 2012.

According to Eurostat data, the Romanian PPS GDP per capita stood at 46% of the EU average in 2010. In July 2012, the net average monthly wage in the country was $420 - one of the lowest in the EU. Inflation in 2010 was 6.1%. Unemployment in Romania was at 7.6% in 2010, which is very low compared to other middle-sized or large European countries such as Poland, France and Spain. General government gross debt is also comparatively low, at 34.8% of GDP. Exports have increased substantially in the past few years, with a 13% annual rise in exports in 2010. Romania's main exports are cars, software, clothing and textiles, industrial machinery, electrical and electronic equipment, metallurgic products, raw materials, military equipment, pharmaceuticals, fine chemicals, and agricultural products (fruits, vegetables, and flowers). Trade is mostly centred on the member states of the European Union, with Germany and Italy being the country's single largest trading partners. The current account balance in 2010 held a deficit of $6.842 billion.

After a series of privatisations and reforms in the late 1990s and 2000s (decade), government intervention in the Romanian economy is somewhat lower than in other European economies. In 2005, the government replaced Romania's progressive tax system with a flat tax of 16% for both personal income and corporate profit, resulting in the country having one of the lowest fiscal burdens in the European Union, a factor which has contributed to the growth of the private sector. The economy is predominantly based on services, which account for 51.2% of GDP, even though industry and agriculture also have significant contributions, making up 36% and 12.8% of GDP, respectively. Additionally, 29.6% of the Romanian population was employed in 2006 in agriculture and primary production, one of the highest rates in Europe.

Since 2000, Romania has attracted increasing amounts of foreign investment, becoming the single largest investment destination in Southeastern and Central Europe. Foreign direct investment was valued at €8.3 billion in 2006. According to a 2011 World Bank report, Romania currently ranks 72nd out of 175 economies in the ease of doing business, scoring lower than other countries in the region such as the Czech Republic. Additionally, a study in 2006 judged it to be the world's second-fastest economic reformer (after Georgia).

During the first quarter of 2011, the average monthly household income was 2,318 Romanian lei, equating to approximately US$ 867 based on international exchange rates, and US$ 1170 based on purchasing power parity. In 2009, the Romanian economy contracted as a result of the global economic downturn. Gross domestic product contracted 7.2% in the fourth quarter of 2009 from the same period a year earlier, and the budget deficit for 2009 reached 7.2% of GDP. Industrial output growth however reached 6.9% year-on-year in December 2009, the highest in the EU-27.