Floods put a lid on GDP increase - only 4.1% in 2005

The GDP went up by only 4.1% last year, with the final quarter marking a rebound of the economy towards a pace that matches the analysts” estimates.

Agriculture collapsed because of floods, industry grew moderately because of restructuring, investments finally managed to exceed the infernal consumption pace and the economy was saved by the steady growth in the services and constructions sectors. This is how things stood in 2005, when economic growth was the lowest in the last five years. The 4.1% increase is much lower than the initial forecasts of the analysts, published last spring, which indicated a 6% growth target.

Still, analysts believe the growth in 2005 is rather good under the circumstances. The economy produced 18.5 billion euros more last year, reaching nearly 80 billion euros. The 31% growth in euros is explained by inflation and the massive appreciation of the RON.

After consumption exceeded investments in the economy in terms of pace of growth for most of last year, the last quarter reversed the trend. Investments (gross fixed capital formation), rose by more than 21% in the last three months of 2005, witnessing a 13% growth for the entire year. Consumption, however, slowed down throughout the entire year, from nearly 12% in the first quarter to 6.4% in the fourth quarter, posting an 8.5% full-year growth.

Damage in agriculture caused by the floods is the main cause of the slow economic rate of growth witnessed last year. Agricultural production fell by nearly 14% in 2005 compared with 2004, the best farming year since 1989. Vergil Voineagu, National Statistics Institute (INS) chairman, says that more than 620,000 hectares (nearly 7% of the total) were affected by floods last year, which considerably diminished agricultural yield and its contribution to the GDP. Agriculture aside, economic growth last year reached 5.8%. After its decline in 2005, agriculture has come to account for 9% of the GDP instead of the previous 13% in 2004.

Industry did not do as well as in previous years, with the gross added value in this sector going up only 2.5% compared with 2004. The growth of industry therefore amounted to less than the average pace between 2000 and 2004. INS chairman blames the slow growth in the industry market on the restructuring in the mining sector, as well as on the production under contract in the clothing and footwear sectors, caused by the appreciation of the RON. Industry currently accounts for some 25% of GDP.

The construction market rose by nearly 10% in 2005, in line with the trend of the last five years. The growth in this sector mainly came from industrial space construction, which increased by nearly 18%. Housing construction progressed somewhat slower, by only 8% compared with 2004, while office building projects witnessed a 4% decline, which is explained by the bigger projects on this market in 2004.

INS figures show the construction market accounts for 6.5% of the economy. At the same time, services sustained a great deal of the economic growth in 2005, contributing 49% to the GDP.