China-topping growth sparks troubling flashback in Romania of 2008 crisis

The last time Romania's economy outpaced China's was 2008, shortly before financial crisis engulfed most of the planet. Politicians basked in that success before the Balkan nation also succumbed, eventually requiring a 20 billion-euro (24 billion US dollars) bailout, reveals an analysis published on Friday by Bloomberg. 

Almost a decade later, Romanian growth - an annual 8.8 percent last quarter - is once again outshining the world's second-biggest economy, the result of a consumer-led boom driven by lower taxes and higher state wages. Other gauges such as inflation and the current-account deficit, while concerning, aren't at the eye-popping levels that preceded the last crash. But some are uneasy. 

"This China-type growth should make decision-makers wonder what to do next," said Ionut Dumitru, chief economist at Raiffeisen Bank Romania SA and head of Romania's Fiscal Council, an independent body that advises the government on budget policy. 

Today's imbalances aren't trivial, the analysts say. The budget shortfall is bumping up against the European Union's limit, consumer demand is boosting imports and swelling the current-account shortfall and consumer-price growth is picking up pace after the first bout of deflation since communism. The National Bank of Romania (BNR) is concerned that the fiscal relaxation comes in the detriment of investments, losing its value. 

BNR Governor Mugur Isarescu worries the experience of 2008, when Romanian politicians patted themselves on the back for besting China, has been forgotten. 

"We're not against stimulating consumption or raising wages but we must pay attention to the dose - how much can you accelerate without having to brake sharply? How many times do we need to smash our head until we learn the lesson?," Mugur Isarescu said. 

According to "red flag" estimations published on Tuesday by the National Institute of Statistics (INS), the Gross Domestic Product (GDP) of Romania increased in 2017, in real terms, by 2.6 percent in Q3 compared to the previous quarter, while compared to the similar period of 2016 the growth was of 8.8 percent on gross series and 8.6 percent as seasonally adjusted series. 

In the first nine months of 2017, Romania's economy recorded an increase by 7 percent. AGERPRES .