Romania’s trade deficit deepens by 29% y/y in Q2

Romania’s trade deficit (goods, fob/cif terms) widened by 29.3% y/y to EUR 8.44 billion in Q2, marking one of the deepest trade gaps ever, according to data published by the statistics office.

Earlier in Q1, the country’s trade balance had improved marginally (the gap narrowed by 2.2% y/y to EUR 6.66 billion), particularly helped by subdued imports of machinery, and transport means (vehicles): -2.3% y/y. The imports for this category, however, increased by +4.8% y/y in Q2, partly in compensation and partly as an effect of robust private consumption.

The trade gap in rolling 12 months increased slightly from 8.7% of GDP as of March 2024 (the lowest reading since before the war in Ukraine) to an estimated 8.8%-8.9% of GDP (depending on the Q2 GDP). The figure was not much lower, in the area of 7%-8% before the Covid-19 crisis, as Romania’s trade deficit is chronic. Significant improvement in Romania’s external balance (goods) is unlikely in the medium run, but the fiscal corrective package expected for 2025 will certainly exert certain pressure in this direction.

The trade gap’s widening in Q2 (+29% y/y) looks impressive both in absolute and relative terms. Still, it is the combined effect of multiple drivers – part of them fundamental (robust private consumption, higher public and private investments, industrial slowdown across entire Europe) but also related to higher volatility in the context of multiple crises (base effects, price effects, inventory effects).

The exports contracted by only 1.4% y/y (to EUR 23.3 billion) in Q2 after the deeper -3.5% y/y decline in Q1. Chemical, automobile, and tobacco industries performed well, posting stronger exports and significant contributions to exports’ dynamics (a combined +2.9 percentage points contribution). However, the disappointing exports of agricultural products (-1.6pp contribution), superficially processed raw materials, and miscellaneous manufactured articles dragged down to the negative territory of the overall performance.

The imports increased by 5.2% y/y (to EUR 31.7 billion), reversing the modest improvement (-3.2% y/y) in Q1.

All the major categories of goods under SITC breakdown posted higher imports, but the most significant advances were in that of machinery and transport means (+4.8% y/y, +1.8pp contribution to quarter’s overall export advance) and that of chemistry (+10.9% y/y, +1.4pp contribution to quarter’s overall export advance). More mineral fuels and food were imported as well.

To various degrees and for various factors (inventory effects for the mineral fuels) the higher imports this year reflect base effects created by depressed economic conditions in 2023 – after the first winter of the war in Ukraine that hit severely Europe’s economy, disrupted the supply chains and depressed investors’ sentiment.