Services, IT&C, construction, main contributors to Romania’s 2.4% GDP growth in Q1

Romania’s gross domestic product (GDP) rose by 2.4%, in real terms, in the first quarter of the year (Q1) compared to the same period last year. The quarterly GDP thus reached RON 216.3 billion (EUR 45.1 bln) at current prices, according to the detailed data released by the statistics office INS.

Domestic consumption eased significantly, but net imports rose sharply, and massive amounts of inventory piled up - in what seems to be an effect of the sudden interruption of economic activity in mid-March.

The added value generated by industry contracted by 5.9% in year-on-year terms, while the construction sector expanded by 23% and IT&C by 14.1%.

The 5.5% advance in the sector of services to households, which includes wholesale, retail, car repair, transport, hotels, and restaurants, made the most significant contribution to the overall growth - 1.1 percentage points. IT&C contributed by 0.9 pp and construction - 0.8 pp, followed by professional activities, administrative and support services - 0.7 pp.

The net taxes collected by the Government contracted by 0.7% in real terms as the executive returned VAT and other due payments to companies.

The annual GDP growth seen in Q1 accounts for the slowest performance in nearly six years (since Q2, 2014). In seasonally and calendar adjusted data, Q1 GDP rose by 0.3% compared to Q4, 2020 - the slowest quarterly growth since 2015.

The figures confirm the flash estimate issued on May 15, but they bring more clarity. INS mentions difficulties related to collecting the data.

The disruption in the economic activity in the second half of March had effects that must be considered when identifying trends. The detailed data indicate three major features. Firstly, the domestic demand for consumption posted the weakest annual growth rate in nearly six years (+3.1% year-on-year in Q1 compared to +7.7% in Q4).

Secondly, net imports rose to 5.6% of GDP in Q1 (from 3.9% in Q4 last year and 4.4% in Q1, 2019) to the highest value (share of GDP) since 2012. In principle, this means a massive utilization of foreign resources for domestic use (consumption or investments). But, given the situation, this might partly stand for exports interrupted during the second half of March. Exports in March (expressed in euros) dropped by over 11% year-on-year after a modest but positive 0.8% annual performance in February. The trade gap in March widened by EUR 561 mln (1.3% of quarter’s GDP), and part of this might stand for suspended exports (imports contracted by only 1.8% year-on-year in March).

The third feature identified in the detailed Q1 GDP data is the sharp rise in inventory during the quarter: RON 7.36 bln (EUR 1.5 bln, over 3% of the quarter’s GDP). This might be linked to the exports suspended during the second half of March and not necessarily to inefficient production.