Effects of Recession and Euro Crisis in Romania

Effects of recession and euro crisis in Romania

Recession in the euro area may continue in the second quarter, affecting Romanian exports, while tensions and uncertainties in Europe risk to anger investors with a negative impact on direct foreign investments in Romania.

Confidence indicators in the economy of euro area for April was at disappointingly low levels, suggesting that recession will continue in the second quarter too.

The euro area is the sales market for more than half of Romania's exports and the foreign demand has already affected GDP negatively in the first quarter, contributing to the return of Romanian economy to recession.

It is anticipated a 1.2% economic growth this year. Romania's economy dropped by 0.1% in the first quarter compared to the last quarter of 2011 and entered technical recession, defined as two consecutive quarters of GDP contraction compared to the previous quarter.

In the fourth quarter of 2011, GDP dropped by 0.2% against the third quarter. The analysts anticipate that the economy in euro area entered recession in the first quarter of 2012, with a 0.2% contraction preceded by a 0.3% drop in the last three months of 2011.

Compared to the first quarter of 2011, Romania's economy grew by 0.3% according to data presented by the National Statistics Institute. Analysts note that a slowing down of exports compared to imports limited economic growth in the first quarter, but the main factor is domestic growth.

The very weak annual growth in the first quarter of the year could be blamed on domestic demand, on people's consumption, which generates about 70% of overall GDP. However, weak investments and the decrease of stocks in industry could contribute to limiting domestic demand, while the more abrupt slowing down of exports against imports suggests a negative contribution of foreign demand to GDP in the first term, compared to the same period of 2011.

Solutions for economic growth

To overcome this crisis, I propose 9 solutions:

1) Niches suitable for export.: The private sector bore the brunt of the crisis, and if exporters manage to go to the right niche, then exports may increase further. "Romanian's GDP is about 1% of the EU. Last year European economy hasn't increased tremendously, but the Romanian exports increased by 30%, having grown and the year before.

2) Accessing European funds : Missing solutions or better said, their implementation. The central authorities should ask the local ones monthly to give account on the use of funds."5.4 billion is allocated for the environment. There, 80% of projects are on sewer and water, so very simple".

3) Not all foreign investment have large impact on GDP, so we need to attract