What Happened in the Neighbour? The Past Decade of Romania's Economic Convergence

Katalin Kis ()
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Katalin Kis: Magyar Nemzeti Bank

Financial and Economic Review, 2021, vol. 20, issue 3, 127-137

Abstract: While further enhancing Hungary's convergence strategy, one should take a look at the convergence process of other countries in the Central and Eastern European (CEE) region, as well as the underlying reasons, the achievements, the issues encountered, the structure of growth and the development of balance indicators. The economic convergence in Romania is a good example of the benefits and drawbacks in this process. In the decade prior to the coronavirus crisis, Romania exhibited one of the most rapid convergence in the CEE region in terms of level of development. Starting from 51.6 per cent in 2010, the country reached 69.4 per cent of the European Union's level of development by 2019, coming close to Slovakia. In the years leading up to the Covid-19 crisis, Romania was among the top performers in economic growth in GDP terms. This growth was based on the significant expansion of disposable real incomes, the dynamic rise in household consumption, growing investment due to the stable investment climate and the government's housing market programme as well as a major improvement in productivity, partly related to the ICT sector. Nevertheless, improving productivity often conceals overheating, and after 2015, wages increased more than productivity. In addition, the deterioration in the current account deficit, together with the increasing deficit and government debt related to the coronavirus crisis, all point towards a negative trend in balance developments. The fact that Romania was able to converge in terms of GDP per capita as measured at purchasing power parity was due to dynamic growth, a substantial population decline and statistical effects.

Date: 2021
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