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Romania’s domestic consumption up 10% in 2007 - extended

Analysis

Romania’s domestic consumption grew by a robust 10% last year, showing scant signs of easing and fuelling new worries over its impact on inflation and the current account deficit.

Romania’s domestic consumption grew by a robust 10% last year due to a real estate boom and household purchases, fuelling new worries over the impact on inflation and the current account deficit. Consumption grew 8.9% on the year in the Q4 of 2007, official data showed on Wednesday, compared with 9% in July-September and 9.8% in the last four months of 2006. A pick-up in investment growth was a positive sign, economists said, but they warned that consumption was still strong and powered concerns of economic overheating. “Household consumption remains the main driver of growth, with imports basically helping satiate the overheating in the economy,” said Simon Quijano-Evans of UniCredit MIB in Vienna.

The Statistics Office said gross fixed capital formation grew by a hefty 29% last year after 19.3% in 2006. It said agriculture, hard hit by drought, recorded the steepest fall of around 17% last year after a 3.3% rise a year earlier. Industry slowed down its growth rate to 5.1% in 2007 against 7.0% in 2006 while construction expanded by a hefty 33.6% from 24.7%.

Analysts said a modest slowdown in household consumption growth to 10.2% last year against 11.4% in 2006 may continue in 2008, but that will keep alive worries over its impact on the country’s double-digit external shortfall. “We had a moderate slowdown in consumption in the Q4 because of saturation of private consumption. This should be offset by public spending in 2008,” said Ciprian Dascalu, analyst at Millennium Bank in Bucharest. “Overall, I predict a constant level of consumption growth this year.”

Economic growth in Romania slowed to 6% in 2007, its first year in the European Union, from 7.7% in 2006, mainly due to poor farming and some deterioration of import-related spending, which was hit by currency weakening. But the economy is still seen growing strongly, driven by robust foreign investment, efforts by firms to modernize and strong spending as Romanians race to improve living standards. Consumption has fanned significant import growth, widening the external shortfall and raising concerns that if foreign cash dries up the country may encounter financial problems. (Reuters)

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