Trade and current account deficits decrease as a result of the reduction in external energy prices

The current account deficit reached 2.6 billion euros after the first two months of 2023, down 17% compared to the level of 3.1 billion euros from the similar period in 2022, Ziarul Financiar notes.

The adjustment, economists say, is not caused by the reduction in consumption, but by the rearrangement of external prices for raw materials and energy.

Just a few years ago, economists believed that a current account deficit exceeding 5% of GDP would be fatal to Romania’s frail economy. Now, the current account deficit of 10% of GDP in 2022 no longer scared anyone.

“We estimate a current account deficit of 8% of GDP this year,” says Ionuţ Dumitru, chief economist of Raiffeisen Bank.

The trade deficit, which strongly imposes the evolution of the current account deficit, also decreased in the first two months of the year. The trade deficit was, in January-February, 4.4 billion euros, 220 million euros lower than in the first two months of 2022. Given that imports are, in part, intended for consumption, the fear is that this consumption decreases and the decrease in consumption is a sign of the grip of the economy, of an economy based on consumption. Inflation is still very high – 14% inflation in March basically means a minus in the buyer’s wallet of 14%.

However, Statistics data show that, in the first part of the year, turnover in retail trade (mainly household consumption) increased by 5%. The data on retail turnover removes the factor of inflation, which means that, in real terms, despite inflation, consumption continues to grow.

“The reduction of the current account deficit has nothing to do with the evolution of consumption, which remains strong. The reduction of the current account deficit is explained by a return to some normality. The price of the fuels we import is falling on the world market, the price of the energy we import, too”, says Dumitru.

So the current account deficit of 26.5 billion euros in 2022, i.e. 10% of GDP, will drop somewhere to 8% of GDP in 2023, says the chief economist of Raiffeisen Bank.

Foreign investments were at a record level last year. Now, of course, the reporting has changed. If a foreign company leaves the money here and does not distribute it to the shareholders, this is called investment. Regardless of the reports, they show that last year foreign investments were 10.6 billion euros. Thursday’s BNR data show that, in the first two months of 2023, foreign direct investments were 2 billion euros, of which equity participations (including the estimated net reinvested profit) had a net value of 1.57 billion euros , and intragroup credits (loans from parent companies) of 405 million euros.