Wage rises boost Romanian consumption and budget deficit

Actual individual consumption (AIC) expressed in Purchasing Power Standards (PPS), showed a significant increase last year in Romania compared to the EU average. According to fresh Eurostat statistics, Romania is at the same level as Poland and ahead of countries like Hungary and Slovakia.

In 2019, before COVID-19, actual individual consumption in Romania was at 79% of the EU average for the 27 Member States. This is significantly higher compared to previous years, as in 2018 it was 70%, in 2017 it was 68%, and in 2016 it was only 63%.

But according to the latest statistics published this week, seven EU Member States – Hungary, Slovakia, Greece, Estonia, Latvia, Croatia and Bulgaria – are now behind Romania, as shown in the image above. There is no surprise as to which countries are leading the list: Luxemburg (AIC is 135% of the EU average), Germany (123%), Austria (118%), Denmark (116%), Belgium (115%) and the Netherlands (114%).

The actual individual consumption (AIC) is not as well-known as GDP/capita, but economists still use it quite often because it refers to all goods and services that are actually consumed by individual households, irrespective of whether these goods and services are purchased and provided by households, by the state or by non-profit organizations.

Eurostat also published GDP data showing that Romania has reached 69% of the EU average, overtaking only Bulgaria (53%) and Croatia (65%), while Latvia is at the same level (69%), and Hungary is ahead (73%).

On the other hand, the higher consumption was a result of wage and pension increases which analysts say are not sustainable. The general government deficit as a percentage of GDP increased from 2.9% in 2018 to 4.3% in 2019, and according to the European Commission’s spring forecast, if current policies remain in place, this figure will further increase to 9.2% in 2020 and to about 11.4% in 2021.


Author: Attila Szoó