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Astonishing boom: Europe's growth champion is ... Romania!

2019-11-01T08:52:45.554Z


Once Romania was Europe's poorhouse, now the country celebrates growth rates such as India or China. German corporations invest, workers are scarce - but the course of the government is risky.



Little time? At the end of the text there is a summary.

Anyone who comes to Bucharest as a visitor from Western Europe experiences quite a few surprises. Away from the old madness palace of dictator Ceausescu, Romania's capital is undergoing a remarkable transformation: many of the picturesque old buildings in the hip Lipscani district have now been lovingly restored, and the numerous cafés and bars are usually well filled. Your clientele? The fast growing new middle class of Romania. Filigree glass and steel skyscrapers stretch into the sky on the horizon.

A surprise was also experienced recently by economic analysts who deal with Romania. When the growth figures for the third quarter of the economies of Central and Eastern Europe were published in November, all forecasts for Romania were a whopping three percentage points off the mark. The Romanian economy did not grow by five percent compared to the previous year, as expected, but by 8.6 percent.

Romania is thus by no means only Europe's by far the most dynamic economy. The country depends on China and India for economic growth. Liam Carson, an expert in Eastern Europe at the London-based analysis firm Capital Economics, even says, "Romania may be the fastest growing economy in the world."

Little noticed by the public in the West, the former poorhouse of Europe is transformed into a growth locomotive. Economic growth in 2015 was already 3.9 percent, in 2016 it was 4.8 percent.

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German companies in Romania: Big Business in the Balkans

Bucharest has changed dramatically in recent years, says Anja Quiring, Regional Director for Southeastern Europe at the Eastern Committee of German Business. New office buildings are being built all over the city. "Bucharest is today a modern European metropolis," says Quiring.

The German economy is feeling the consequences of the boom, Germany is Romania's most important trading partner. German exports to Romania rose by eleven percent last year. And: The country is gaining importance. Romania now ranks 21st among Germany's most important trading partners on the list of the most important export markets of German companies, ahead of Mexico and India. In 2000, Romania was ranked 36th.

7500 companies with German equity holdings operate locally. In recent years, they have created more than 250,000 new jobs in the country, according to the German Chamber of Foreign Trade.

What are the reasons for the upswing?

Development is not exclusively a Romanian phenomenon: the upturn has affected the whole of Central and Eastern Europe. Although Romania stands out, growth in Poland and the Czech Republic also rose to five percent in the third quarter of 2017, Bulgaria (plus 3.9 percent), Hungary (3.8 percent) and Slovakia (3.4) also grew significantly ,

One reason: wages and salaries in the region are still relatively low compared to the Eurozone: In Romania, the average earnings are around 450 euros. At the same time, the level of education is good in many places: For many companies, this opens up the possibility of integrating Romania into their global - or at least European - production chains. This is also reflected in the development of different industries. Electrical engineering (up 13.7 percent), the auto industry (9.3 percent) and petrochemicals (8.1 percent) grew particularly strongly in 2016.

One example is Sibiu, Transylvanian Sibiu: The French company Faurecia manufactures seat covers here. But Sibiu is more than just an extended workbench: the German automotive supplier Continental not only employs around 3,000 workers in Sibiu, the company has also set up part of its research and development department there. The company plans to double the number of engineers there to 2,000 in the near future. Continental employs 18,000 people nationwide.

"Romania also has well-trained IT and communications technology professionals," says Quiring. For this reason, Deutsche Bank has set up a global IT hub in Bucharest, while the software group SAP serves customers in Europe, Africa and the Middle East from Timisoara, Romania. "Growth in this area has been extremely strong over the past five years," says Alexandru Nicolae, Romania specialist at JP Morgan.

How sustainable is the boom?

For Romanians, the trend has had positive effects: unemployment is falling, according to a study by the human resources service provider Manpower exceeds the demand for labor in six out of eight Romanian regions, the supply.

That also raises salaries. On average, wages increase by around ten percent per year. In booming industries such as vehicle construction, employees recently received just under 28 percent more money, and 25 percent in finance. In the IT industry, Romanians can now earn enough that some years ago emigrated specialists now return to the country, according to a report by "Germany Trade and Invest (GTAI)", the successor of the former Federal Agency for Foreign Trade.

Nevertheless, Romania's economic miracle remains shaky: Civil society and the business community are equally concerned that the government in Bucharest wants to curtail the powers of the Anti-Corruption Authority (DNA). "The pressure of the government could frighten foreign investors," warns Romania analyst Alexandru Nicolae.

In order to soften the population, the leadership in Bucharest is distributing benefits and stimulus programs - and is fueling the already strong boom. The VAT was lowered, the excise duty on petrol completely deleted. In February, the statutory minimum wage was increased to the equivalent of 320 euros, by 2022 it should be almost doubled again.

The rating agency Moody's has therefore recently accused Romania of a lack of structural reforms and lowered its outlook, despite the excellent growth figures. These have recently been "driven largely by the expansionary fiscal policy," warns Moody's. Public finances have "crossed a turning point and will continue to deteriorate".

In other words, Romania is increasingly in debt - and risks opening an EU deficit procedure. The country makes the same mistake as Greece, believes Cristian Paun of the University of Bucharest: "We are increasing the debt even in the boom," said the economist. But when a crisis comes, "we will inevitably be unprotected".

In summary: The Romanian economy is growing faster than all other EU countries, even in the third quarter by 8.6 percent. The reasons for the boom: For many Western companies, Romania is becoming a springboard to Southeastern Europe, with well-educated professionals. For German automotive suppliers such as Bosch, the location has long been part of their cross-border production chains, Deutsche Bank has set up a global IT center. However, the government continues to fuel the boom with more and more benefits - thereby risking a crash and the opening of an EU deficit procedure.

Source: spiegel

All business articles on 2019-11-01

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