COMMISSION STAFF WORKING DOCUMENT In-depth review for Romania in accordance with Article 5 of Regulation (EU) No. 2011/1176 on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2022 European Semester – Spring Package
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: European Semester, Romania, competitiveness, economic disparity, economic policy, economic recovery, energy policy, fiscal policy, macroeconomics

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  SWD(2022) 638 final  COMMISSION STAFF WORKING DOCUMENT In-depth review for Romania         in accordance with Article 5 of Regulation (EU) No. 2011/1176 on the prevention and correction of macroeconomic imbalances           Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2022 European Semester – Spring Package {COM(2022) 600 final} - {SWD(2022) 628 final} - {SWD(2022) 629 final} - {SWD(2022) 630 final} - {SWD(2022) 631 final} - {SWD(2022) 632 final} - {SWD(2022) 633 final} - {SWD(2022) 634 final} - {SWD(2022) 635 final} - {SWD(2022) 636 final} - {SWD(2022) 637 final} - {SWD(2022) 639 final}  
 
 
On  the  basis  of  this  in-depth  review  for  Romania  undertaken  under  Regulation  (EU) 
No  1176/2011  on  the  prevention  and  correction  of  macroeconomic  imbalances,  the 
Commission has considered in its Communication “European Semester – 2022 Spring 
Package” (COM(2022)600 final) that: 

Romania is experiencing imbalances. Vulnerabilities relate to external accounts, linked to 
large  fiscal  deficits,  and  to  competitiveness  issues  that  are  re-emerging.  The  high  current 
account  deficit  further  worsened  in  2021  and  is  not  forecast  to  improve  this  year  or  next. 
Large  fiscal  deficits  pre-date  the  COVID-19  crisis  and  have  driven  up  the  current  account 
deficit  which  poses  risks  to  external  debt  sustainability.  Sovereign  borrowing  costs  have 
increased since early 2021. The expected acceleration in wages could weigh further on cost 
competitiveness.  Nominal  depreciation  could  mitigate  competitiveness  losses  but  add  to 
inflationary pressures and increase the burden of serving debts in foreign currencies,  which 
are  significant  for  the  government  and  the  private  sector.  The  negative  net  international 
investment  position  is  expected  to  remain  below  its  pre-pandemic  levels.  The  external 
position  is  expected  to  benefit  from  significant  RRF  funds  but  external  financing  can 
otherwise become more challenging amid tighter global financial conditions. Recent policy 
initiatives,  including  the  successful  implementation  of  Romania’s  RRP,  can  address  some 
vulnerabilities,  still  further  action  is  needed  to  improve  competitiveness  and  potential 
growth. 

1 

 
 
 
 
 
CONTENTS 

1.  Introduction 

2.  Assessment of macroeconomic imbalances 

3.  Thematic chapter: External Imbalances 

LIST OF TABLES 

Table b.1.1:   Selected exposures 

Table 2.1: 

Selected economic and financial indicators (Part 1), Romania 

Table 2.2: 

Selected economic and financial indicators (Part 2), Romania 

Table 3.1: 

Selected external indicators, Romania 

LIST OF GRAPHS 

Graph b.1.1:  Sectoral distribution of energy use and of energy imported from Russia  

Graph 3.1: 

Thematic Graphs: External position 

3 

4 

11 

8 

9 

10 

14 

8 

15 

2 

 
 
 
 
 
 
1.  INTRODUCTION 

In 2021, over the previous annual cycle of surveillance under the Macroeconomic  Imbalances Procedure 
(MIP), the Commission identified “macroeconomic imbalances” in Romania. (1) These imbalances were 
related  to  a  persistent  sizeable  current  account  deficit  in  a  context  of  large  government  deficits,  while 
previous overheating pressures were receding. The 2022 Alert Mechanism Report published in November 
2021  concluded  that  a  new  in-depth  review  (IDR)  should  be  undertaken  for  Romania  with  a  view  to 
assess the persistence of imbalances or their unwinding. (2) 

In 2021, GDP rebounded strongly, after the COVID-19 related shock. (3) GDP grew by 5.9% in real 
terms  in  2021,  largely  driven  by  private  consumption  and  gross  fixed  capital  formation.  Despite 
headwinds caused by external demand shocks and supply chain disruptions, exports continued growing, 
not  as  fast  as  imports  though.  The  trade  deficit  contributed  to  a  further  increase  in  the  current  account 
deficit.  The  real  GDP  growth  outlook  remains  positive,  albeit  more  muted  than  previously  anticipated. 
Given the slowdown in late 2021 and early 2022, the economy is set to expand by 2.6% in 2022 and 3.6% 
in 2023, supported by major investments and reforms included in the recovery and resilience plan (RRP) 
and  other  EU  funded  projects,  notably  under  Cohesion  Policy  Funds.  Russia’s  invasion  of  Ukraine  has 
placed a further drag on the economy, due to the continuous disruption in supply chains and the surge in 
energy  prices.  Nominal  GDP  in  2023  is  forecast  to  exceed  its  2019  level  by  36.3%.  HICP  increased  at 
4.1%  annually  in  2021  and  is  forecast  to  increase  to8.9%  in  2022  mainly  due  to  rising  energy, 
commodities  and  food  prices.  By  the  end  of  2021,  the  labour  market  had  not  fully  recovered  from  the 
pandemic-induced recession, with the unemployment rate at 5.6%. The unemployment rate is projected to 
stay roughly the same, but wage growth is set to slightly rebound, pushed by inflation, amid more muted 
productivity  gains.  The  general  government  deficit  remained  high  at  7.1%  of  GDP  in  2021,  adding 
significantly to the large net external borrowing needs of the Romanian economy. The 2022 budget and 
the accompanying medium-term fiscal strategy confirm the headline EDP target, but apart from a freeze 
on the majority of public sector wages in 2022, do not spell out the underlying measures to achieve the 
target.  Current  projections  remain  highly  uncertain,  in  particular  due  to  the  war  in  Ukraine  and  rising 
inflation. 

This in-depth review presents the main findings of the assessment of imbalances. The assessment is 
backed by a thematic section on the external position. Spill-overs and systemic cross-border implications 
of imbalances are also taken into account. In addition, assessments of structural issues made in previous 
IDRs and in the context of fiscal assessments are also considered if relevant. The MIP assessment matrix 
is published in the 2022 Country Report for Romania. (4) 

(1)  European Commission (2021), European Semester Spring Package 2021, COM(2021) 500 final. 
(2)  European Commission (2021), Alert Mechanism Report 2022, COM (2021) 741 final. 
(3)  Forecast data are from European Commission (2022), European Economic Forecast: Spring 2022, Institutional Paper 172. 
(4)  European Commission (2022), Country Report Romania 2022, SWD(2022)624 final. 

3 

 
 
                                                           
2.  ASSESSMENT OF MACROECONOMIC IMBALANCES 

Assessment of gravity, evolution and prospects of macroeconomic imbalances 

Despite the positive export dynamics, the current account deficit widened to 7.0% of GDP in 2021, 
marking its sixth year of deterioration, largely reflecting the still high government deficit. Since its 
position of being close to balance in 2015, the Romanian current account deficit has expanded each year, 
also pushed by the general government net borrowing that added significantly to the external borrowing 
needs of the economy. The increase in energy prices, also associated to the Russian military aggression 
against  Ukraine,  may  adversely  affect  the  current  account  balance,  although  dependence  on  imported 
energy remains below the EU average (see box 2.1). The current account balance is set to stay at around 
the same level in 2022 and 2023, which is well beyond what fundamentals would suggest. Against this 
backdrop, the net international investment position (NIIP) of Romania remains  negative. Moreover, the 
steady and continuous improvements of the NIIP-to-GDP ratio over the past decade, which were mostly 
due to denominator effects rather than improvements in the savings-investment balance, stopped in 2020, 
and  the  prospects  are  for  some  deterioration  this  year  and  next  (see  Graph  3.1(f)).  A  more  detailed 
analysis of the external sector dynamics is presented in the thematic section. 

Until  2019,  the  current  account  deficit  was  financed  mainly  through  net  direct  investments.  The 
economic  downturn  in  2020  triggered  a  shift  in  the  financing  of  the  current  account  deficit  away  from 
more stable direct investments towards portfolio investments, in particular debt securities. Nevertheless, 
with  the  improvement  in  the  economic  situation  in  2021  there  was  a  reduction  of  financing  by  debt 
securities by half and a marked expansion of direct investments net inflows.  

Persistent  high  fiscal  deficits  weigh  on  the  government’s  debt  level  as  well  as  on  the  external 
financing needs of the country as a whole. Even before the outbreak of the COVID-19 crisis, the fiscal 
stance  was  expansionary  despite  robust  economic  growth,  leading  to  large  government  deficits.  These 
increased further during the pandemic to finance measures to support the economy. The budget deficit is 
projected to  gradually narrow from 7.1% in 2021 to 6.3% of GDP in 2023, after increasing to 7.5% of 
GDP in 2022, while the Romanian government aims to reduce it below 3% of GDP by 2024, in line with 
the  EDP  recommendations.  Romania’s  fiscal  deficits  have  been  increasingly  financed  from  abroad  and 
raised the total government debt ratio from 35.3% of GDP in 2019 to 48.8% of GDP in 2021. The share 
of general government external debt reached 50.9% in 2020, up from 46.3% a year before and the share 
of debt denominated in foreign currency remained somewhat over 51% in 2020 and 2021. However, the 
share of short-term debt (i.e. maturity of less than one year) stayed low and the gross financing needs of 
the government are moderated. Romanian sovereign debt has been rated with the lowest investment grade 
by the  main rating agencies. Long-term  yields on government debt kept on rising since  February 2021, 
reaching  more  than  6%  in  the  first  quarter  of  2022  and  are  among  the  highest  in  the  region.  The 
Commission’s  fiscal  sustainability  assessment (9)  shows  that  Romania  faces  high  fiscal  sustainability 
risks over the medium–term, and medium risks over the long-term. 

Cost  competitiveness  pressures  eased  during  the  pandemic  but  are  expected  to  increase  again. 
Before  the  COVID-19  crisis,  over  the  years  2016-2019,  nominal  unit  labour  costs  (ULCs)  grew  on 
average  by  over  8%  per  year,  mainly  due  to  wages  (nominal  compensation  per  employee)  growing  on 
average  by  13.5%  per  year  over  that  period.  The  pandemic  led  to  a  moderation  in  wage  growth,  but 
already  in  2021  wage  growth  rebounded  strongly  to  5.7%,  from  2.6%  in  2020.  As  public  wages  were 
frozen in 2021, private and industry wages grew more than those of the public sector for the first time in 
five  years.  Still,  public  wages  grew  on  average  50%  more  than  private  services  (33%  more  than 
industry) (10).  Possible  wage-growth  spillovers  from  the  public  to  the  private  sector  risk  denting  the 

(9)  See  European  Commission  Country  Report  on  Romania  for  the  latest  results  and  the  ‘Fiscal  Sustainability  Report  2021’, 

Institutional Paper 171, 25 April 2022 for methodological details 

(10)  Calculations based on data on net wages by sector published  by the Romanian National  Institute of Statistics (INSS TEMPO 

database).  

4 

 
                                                           
2. Assessment of macroeconomic imbalances 

competitiveness of exports (11). The deceleration of ULCs growth between 2019 and 2021 enabled more 
moderate appreciations of the real effective exchange rate than in past years. Nominal unit labour costs 
are forecast to increase by 6.4% in 2022 and 4.1% in 2023, which, while  well below pre-crisis rates, is 
higher  than  for  several  trading  partners.  This  will  be  on  the  back  of  stronger  nominal  wage  growth  of 
8.3% and 7% in 2022 and 2023 respectively, and as productivity growth moderates to an average of 2.3%. 
The  effects  on  future  export  and  investment  performance  remains  to  be  seen,  as  the  economy  recovers 
from the pandemic.  

Non-cost  factors  limit  Romania’s  competitiveness.  An  insufficient  transport  infrastructure  hinders 
businesses’  ability  to  ship  merchandise  both  within  and  outside  the  country,  and  jeopardises  spatial 
cohesion. A shrinking labour force, skills shortages, limited capacity of the public employment services, a 
weak  training  and  education  system  and  low  innovative  capacity  negatively  affect  the  business 
environment.  Significant  red  tape  coupled  with  an  inefficient  public  administration,  and  a  rather 
unpredictable legislative framework (12), further undermine competitiveness and investment inflows and 
overall country attractiveness as an investment destination.  

The  financial  sector  weathered  the  COVID-19  shock  well,  but  the  sovereign-bank  nexus  remains 
significant. The banking sector remained well capitalised and liquid, with the aggregate Common Equity 
Tier  1  ratio  slightly  increasing  from  19.6%  in  2020Q3  to  20.4%  in  2021Q3.  Bank  profitability  as 
measured by the return-on-equity increased from 8.2% in 2020Q3 to 10.3% in 2021Q3. The gross non-
performing  loans  (NPLs)  ratio  declined  to  3.7%  in  2021Q3.  Consolidated  private  sector  debt  is  low  at 
around 50% of GDP, but part of it is denominated in foreign currency 16.7% of the  domestic loans for 
households and 37.2% of the domestic loans for non-financial corporations), which exposes debt service 
to  exchange  rate  risk.  The  sovereign-bank  nexus,  however,  has  remained  significant.  With  government 
debt holdings by the local banks at around 24% of their total assets in August 2021, the own-sovereign 
exposure  of  banks  in  Romania  is  among  the  highest  in  the  EU.  Risks  related  to  the  phase-out  of  state-
support  measures and to potential second-round effects on economic growth from  Russia’s  unprovoked 
invasion of Ukraine could lead to further vulnerabilities associated to private sector debt. 

Assessment of MIP relevant policies 

In November 2021, the Council approved Romania’s  Recovery and Resilience Plan (RRP), which 
contains  several  measures  that  contribute  to  addressing  Romania’s  macroeconomic  imbalances. 
The  successful  implementation  of  the  RRP  should  improve  fiscal  sustainability  and  the  business 
environment in the long run, compensating short-run effects such as the boost of imports due to the high 
import  content  of  investments.  In  particular,  the  tax  and  pension  reform  component  covers  measures 
aimed at modernising the fiscal administration, revenue collection, improving the budgetary programming 
by making it more transparent and predictable, as well as adopting a new law on public pensions system 
to cap its total gross expenditure at 9.4% of GDP, thus safeguarding its sustainability. The RRP foresees a 
number  of  measures  that  aim  at  making  the  legislative  process  more  predictable,  transparent  and  less 
burdensome  for  business.  For  example,  legislative  initiatives  with  a  significant  impact  on  the  business 
environment  will  go  through  regulatory  screening  and  any  newly  introduced  burdens  will  be  offset  by 
removing equivalent burdens. A Single Industrial Licence should moreover minimise excessive red tape 
for companies.  

The RRP is set to address several of the factors limiting competitiveness. Investments are foreseen in 
road  and  rail  infrastructure,  benefitting  trade  and  distribution  chains.  On  education,  around  12%  of  the 
plan will focus on improving the quality and access to education and its digital and overall infrastructures. 
Further  measures  will  provide  aid  schemes  for  the  digitalisation  of  SMEs  and  support  businesses  in 
general through the operationalisation of the National Development Bank. On innovation, reforms of the 

(11)  See  European  Commission,  DG  ECFIN, 

in  Romania. Luxembourg:  Publications 
Office. https://data.europa.eu/doi/10.2765/287819  and  National  Bank  of  Romania.  2016.  “Inflation  Report,  February  2016,” 
February. https://www.bnr.ro/PublicationDocuments.aspx?icid=6876. 

2019. Wage  Dynamics 

(12)  Unpredictability stems from the use of Government Emergency Ordinances (GEOs), which is a widespread method of enacting 
laws in Romania. For instance, the number of GEOs went up from 91 in 2019, to 226 in 2020 and then decreased to 145 for 
2021. The high number of GEOs issued in the period 2020-2021, should also be considered in the context of the extraordinary 
circumstances occasioned by the pandemic. See the 2021 In-depth Review for Romania and the Romanian 2020 Country report:  

(https://ec.europa.eu/info/sites/default/files/12_en_autre_document_travail_service_part1_v3.pdf) 
(https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020SC0522&from=EN) 

5 

                                                           
2. Assessment of macroeconomic imbalances 

R&D&I  system  also  aim  at  attracting  more  talent  and  resources  to  broaden  the  innovative  capacity  of 
research institutes and strengthen science-industry linkages. The capacity, transparency and effectiveness 
of the judiciary system and public administration is also set to be improved. 

A minimum wage setting mechanism will prevent future ad-hoc increases as in the past, easing cost-
competitiveness pressures.  In early 2021, the government raised the minimum gross salary to Lei 2300 
(EUR 466) and approved a subsequent increase to Lei 2550 (EUR 515) for January 2022. These increases 
were  already  taking  into  account  several  economic  indicators  such  as  inflation  and  productivity,  as 
opposed to past ad-hoc increases, but an objective mechanism is still not in place. The RRP foresees for 
2024, a reform establishing a new mechanism for setting the minimum wage, based on objective criteria 
and  consistent  with  competitiveness  and  job  creation  in  the  country.  Furthermore,  public  wages  were 
frozen in 2021, except in the health sector, after a cumulative increase of 37.5% over the past four years, 
contributing to an easing of cost-competitiveness pressures. 

There  is  scope  for  further  action  to  address  labour  shortages  and  skills  mismatches,  overly 
regulated  markets,  weak  business  innovation  and  poor  public  administrative  capacity.  The  2022 
Romania  Country  Report (13)  identifies  four  priorities  ahead,  which  could  build  up  and  complement 
ambitious  reforms  and  investments  contained  in  Romania’s  RRP.  Firstly,  the  supply  of  skills  does  not 
meet its demand, and active labour market policies have failed to narrow this gap – especially among the 
most  vulnerable  segments  of  the  labour  force.  Secondly,  because  of  overly  regulated  markets,  certain 
business services can weigh significantly on companies’ books, thus undermining their competitiveness. 
Thirdly,  knowledge  transfer  between  science  and  industry  is  still  limited:  the  supply  of  ideas  is  scant, 
companies  (especially  those  that  do  not  benefit  from  foreign  direct  investments)  lack  the  capacity  to 
absorb  them,  and  the  governance  of  the  R&D&I  system  is  fragmented.  Finally,  weak  administrative 
capacity – with insufficient own resources and over-reliance on transfers from the central government – is 
one of the causes for low-quality local public services. 

Conclusions  

Romania  is  facing  vulnerabilities  relating  to  its  competitiveness  and  particularly  to  its  external 
balance  developments.  The  large  fiscal  and  current  account  deficits,  which  pre-dated  the  COVID-19 
crisis,  have  increased  further  with  the  pandemic-induced  recession.  Government  debt  increased 
significantly,  albeit  from  moderate  levels,  and  sovereign  borrowing  costs  kept  growing.  Currency 
exposures are significant for government and private sector debt. Cost competitiveness losses have eased 
somewhat in recent  years due to more moderate  pay rises.  A volatile policy environment contributes to 
uncertainty  and  high  risk  premia,  with  detrimental  effects  on  investment  activity  and  the  business 
environment.  Concerns  around  the  external  position  are  not  expected  to  unwind  soon,  amid  a  sizeable 
government  deficit.  The  current  account  deficit  further  deteriorated  in  2021  and  is  expected  to  remain 
elevated in the medium term, with sizeable fiscal deficits also forecast to continue. The financing of the 
significant  external  borrowing  needs  could  become  more  challenging  as  global  monetary  policies 
normalise.  The  expected  acceleration  in  wages  could  weigh  on  cost  competitiveness.  Nominal 
depreciation  gave  some  relief  to  the  competitiveness  losses  over  past  years  but  it  could  create  further 
inflationary  pressures  and  weigh  on  the  service  of  government  and  private  debts  in  foreign  currencies. 
Romanian trade and financial links with both Ukraine and Russia are fairly small and are likely to affect 
economic vulnerabilities more via its impact on energy markets and prices (see box 2.1). 

Recent  policy  initiatives,  including  the  successful  implementation  of  Romania’s  recovery  and 
resilience plan, could address some vulnerabilities, still further action is needed. After several years 
of expansionary fiscal policy, some fiscal consolidation albeit limited has started in 2021. The freezing of 
public  sector  wages  in  2021  had  a  positive  impact  on  cost  competitiveness.  Increases  in  the  minimum 
wage  appear  to  be  contained  and  should,  within  the  RRP  commitments,  be  based  on  an  objective 
mechanism. The RRP also includes measures that are conducive to improving non-cost competitiveness, 
such  as  improving  infrastructure,  education,  the  business  environment  and  the  efficiency  of  the  public 
administration,  the  legislative  process,  financial  management  as  well  as  the  judiciary.  The  activation 
measures provided by the public employment service, including up- and re-skilling, are not sufficient and 
effective  in  view  of  the  rapidly  shrinking  workforce  and  increasing  labour  shortages.  The  number  of 

(13)  European Commission (2022), Country Report Romania 2022, SWD(2022)624 final. 

6 

                                                           
2. Assessment of macroeconomic imbalances 

beneficiaries  profiting  from  these  services  is  increasing  only  slowly,  with  participation  in  activation 
measures  still  one  of  lowest  in  the  EU.  The  quality  of  local  public  services  suffers  from  a  fragmented 
decentralisation  framework  and  inadequate  own  fiscal  capacity.  Finally,  research  institutions’  scant 
supply  of  ideas  and  the  poor  ability  of  the  private  sector  to  absorb  them  jeopardises  Romania’s 
innovativeness and competitiveness.  

Based  on  the  findings  in  this  in-depth  review,  the  Communication  “European  Semester  –  2022 
Spring  Package” (14)  sets  out  the  Commission’s  assessment  as  to  the  existence  of  imbalances  or 
excessive imbalances in Romania, in line with Regulation 1176/2011. 

(14)  European Commission (2022), European Semester Spring Package 2022, COM(2022)600 final. 

7 

 
 
                                                           
2. Assessment of macroeconomic imbalances 

Box 2.1: 

Exposures to the commodity price surge, and to Russia 

This  box  summarizes  risks  and  exposures  regarding  the  commodity  price  surge,  and  the 
importance of direct links with the Russian economy. The surge of commodity prices since 2021 
had been aggravated by the Russian  military aggression against Ukraine. This box reviews  the risks 
for  the  macroeconomic  vulnerabilities  of  Romania.  Romania  shares  an  important  border  with 
Ukraine  and  is  subject  to  some  direct  repercussions  from  the  war,  most  notably  refugee  inflows, 
although the majority leave to other countries. In contrast, most Romanian trade and financial links 
with both Ukraine and Russia are fairly small. Gas and oil imports from Russia are the only notable 
exceptions, with some implications for the domestic economy. 

Graph b.1.1: 

Sectoral distribution of energy use and of energy imported from Russia  

Notes: The left panel displays the distribution of primary energy usage in Romania according to Eurostat energy balances. The horizontal axis displays the 
relative importance of energy-consuming sectors. The vertical axis displays the importance of energy importance from Russia in satisfying that need. Note 
that this dependence on Russia differs according to sector’s use of natural gas vs oil and coal. For comparison, the right hand panels displays the same 
concept for the EU aggregate. Russian imports include oil and petroleum products, natural gas and solid fossil fuels. 
Sources: Eurostat and European Commission services calculations 
The Romanian energy mix is similar to the EU average, with a focus on oil and gas. Romania 
depends on crude oil imports, in particular from Russia, as the input for its large refining industry, 
which then re-exports its products (see Table b.1.1). Imports from Russia account for a significant 
share  of  energy  consumption  in  industry,  transport,  and  electricity  production  (See  Graph  b.1.1). 
Domestic  residential  heating  features  suggest  that  Russian  gas  is  of  smaller  importance  for  the 
household  sector.  On  aggregate,  the  dependence  on  imported  gas  remains  low  and  below  the  EU 
average. Overall, the commodity price surge since 2021 is likely to affect the Romanian trade balance. 
At  constant  prices,  Romanian  net  fossil  fuel  imports  normally  amount  to  ca.  1.5%  of  GDP.  The 
wholesale prices expected for 2022 are likely to widen that amount to ca. 3% of GDP for 2022, with 
a narrowing expected for 2023.  

Table b.1.1:  

Selected exposures 

Notes: data source Eurostat for commodity exposures, European Commission Figaro for value-added exposures, BIS for consolidated banking exposures, 
European Commission FinFlows for other financial exposures. Energy gross inland consumption excludes net imports of electricity and derived heat. 

8 

Trade & financial exposuresunitROEUEnergy mixunitROEUDomestic value added embodied in exports to Russia% of GDP0.3%0.4%Solids fossil fuels (incl. peat)% of Gross inland consumption 202010.9%10.8%Non-energy Russian import content in final demand% of GDP0.6%0.4%Oil and petroleum products% of Gross inland consumption 202030.1%32.7%Russian tourist nights spent% of total 20191.3%2.7%Natural gas% of Gross inland consumption 202030.3%24.4%FDI assets held in Russia% of 2020 GDP0.0%2.5%Renewables and waste% of Gross inland consumption 202019.6%19.0%Portfolio & other inv. assets held in Russia% of 2020 GDP0.0%0.9%Nuclear% of Gross inland consumption 20209.0%13.1%FDI liabilities towards Russia% of 2020 GDP0.1%1.2%Commodity exposuresunitROEUPortfolio & other inv. liabilities towards Russia% of 2020 GDP0.1%1.1%Net petroleum imports from all countries% of GDP 20211.3%1.2%Consolidated banking exposures towards Russia% of 2021 GDP0.5%Crude oil imports from Russia '20% of oil imports32.3%25.7%Net gas imports from all countries% of GDP 20210.2%0.6%Gas imports from Russia '20% of gas imports44.8%43.6% 
 
 
 
 
 
 
 
 
Table 2.1: 

Selected economic and financial indicators (Part 1), Romania 

2. Assessment of macroeconomic imbalances 

 (e) estimate based on ECB quarterly data 
(1) Potential output is the highest level of production that an economy can reach without generating inflationary pressures. 
The methodology to compute the potential output is based on K. Havik, K. Mc Morrow, F. Orlandi, C. Planas, R. Raciborski, W. 
Roeger, A. Rossi, A. Thum-Thysen, V. Vandermeulen, The Production Function Methodology for Calculating Potential Growth 
Rates & Output Gaps, COM, European Economy, Economic Papers 535, November 2014. 
(2) Deviation of actual output from potential output as % of potential GDP. 
(3) Current accounts in line with fundamentals ("current account norms") are derived from reduced-form regressions 
capturing the main determinants of the saving-investment balance, including fundamental determinants, policy factors and 
global financial conditions. See L. Coutinho et al. (2018), "Methodologies for the assessment of current account benchmarks", 
European Economy, Discussion Paper 86/2018, for details.  
(4) This benchmark is defined as the average current account required to reach and stabilise the NIIP at -35% of GDP over the 
next 20 years. Calculations make use of Commission’s T+10 projections. 
(5) NENDI is a subset of the NIIP that abstracts from its pure equity-related components, i.e. foreign direct investment (FDI) 
equity and equity shares, and from intracompany cross-border FDI debt, and represents the NIIP excluding instruments that 
cannot be subject to default. 
(6) Fundamentals-based benchmarks are derived from regressions capturing the main determinants of credit growth and 
taking into account a given initial stock of debt. Prudential thresholds represent the debt threshold beyond which the 
probability of a banking crisis is relatively high, minimising the probability of missed crisis and that of false alerts. Methodology 
to compute the fundamentals-based and the prudential benchmarks based on Bricongne, J. C., Coutinho, L., Turrini, A., 
Zeugner, S. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1- 42. 
Source:  Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

9 

all variables y-o-y % change unless otherwise stated2003-072008-122013-17201820192020202120222023Real GDP 6.50.64.54.54.2-3.75.92.63.6Potential growth  (1)5.72.53.43.94.13.13.43.13.3Contribution to GDP growth:Domestic demand 13.3-1.24.15.16.5-2.05.53.04.3Inventories -1.20.00.31.0-0.6-0.31.80.1-0.3Net exports -5.81.40.0-1.6-1.6-1.5-1.4-0.5-0.4Contribution to potential GDP growth (1):Total Labour (hours) -0.9-1.1-0.3-0.1-0.5-0.8-0.9-0.5-0.4Capital accumulation 1.72.31.00.71.71.71.61.61.7Total factor productivity 4.91.32.73.32.82.32.72.02.0Output gap (2)4.0-0.8-1.01.92.0-4.8-2.5-3.0-2.7Unemployment rate8.88.57.95.34.96.15.65.55.3Harmonised index of consumer prices (HICP)9.55.70.84.13.92.34.18.95.1GDP deflator 13.46.13.16.26.83.95.49.54.9External positionCurrent account balance (% of GDP), balance of payments-9.5-6.3-1.3-4.6-4.9-5.0-7.0-7.4-7.3Trade balance (% of GDP), balance of payments-10.7-7.5-1.1-3.4-4.1-4.3-5.7..Primary income balance (% of GDP)-3.2-1.5-1.1-1.8-1.4-1.5-1.7..Secondary income balance (% of GDP)4.42.70.90.60.70.90.4..Current account explained by fundamentals (CA norm, % of GDP) (3)-1.8-0.8-0.40.10.20.30.20.40.5Required current account to stabilise NIIP above -35% of GDP over 20Y (% of GDP) (4)-3.3-3.6-4.8-4.3-4.0-3.7-3.9-3.5-3.1Capital account balance (% of GDP)0.50.62.21.21.31.92.2..Net international investment position (% of GDP)-37.4-61.7-54.3-43.8-43.6-47.9-45.7..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-5.0-22.2-12.0-3.9-4.1-7.1-6.7..Net FDI flows (% of GDP)-6.4-2.8-2.30.0-3.6-8.3-6.3-8.5-5.4CompetitivenessUnit labour costs (ULC, whole economy)7.45.23.88.26.64.7-9.06.44.1Nominal compensation per employee 18.07.98.512.910.92.65.78.37.0Labour productivity (real, hours worked)7.02.84.84.33.1-2.214.21.52.5Real effective exchange rate (ULC)9.1-3.02.65.21.5....Real effective exchange rate (HICP)8.5-2.9-0.12.3-0.21.30.1..Export performance vs. advanced countries (% change over 5 years)84.169.125.520.715.621.2...Private sector debtPrivate sector debt, consolidated (% of GDP)41.870.758.347.546.748.450.3e..Household debt, consolidated (% of GDP)10.621.417.515.815.516.216.9e..Household  debt, fundamental benchmark (% of GDP) (6)5.712.819.519.619.220.920.4..Household  debt, prudential threshold (% of GDP) (6)92.765.656.262.264.160.359.8..Non-financial corporate debt, consolidated (% of GDP)31.149.340.831.631.332.233.4e..Corporate debt, fundamental benchmark (% of GDP) (6)16.323.132.935.636.240.039.9..Corporate debt, prudential threshold (% of GDP) (6)107.179.485.695.098.798.397.9..Private credit flow, consolidated (% of GDP) 12.83.0-0.31.92.01.33.7e..Corporations, net lending (+) or net borrowing (-) (% of GDP)-2.88.011.612.18.98.98.310.510.7Households, net lending (+) or net borrowing (-) (% of GDP)...::Net savings rate of households (% of net disposable income).........forecast 
 
    
 
Table 2.2: 

Selected economic and financial indicators (Part 2), Romania 

2. Assessment of macroeconomic imbalances 

(7) Unweighted average of price-to-income, price-to-rent and model valuation gaps. The model valuation gap is estimated 
in a cointegration framework using a system of five fundamental variables; total population, real housing stock, real 
disposable income per capita, real long-term interest rate and price deflator of final consumption expenditure, based on 
Philiponnet, N., Turrini, A. (2017), "Assessing House Price Developments in the EU," European Economy - Discussion Papers 2015 - 
048, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission. Price-to-income and price-to-
rent gaps are measured as the deviation to the long term average (from 1995 to the latest available year). 
(8) Price-to-income overvaluation gap measured as the deviation to the long term average (from 1995 to the latest available 
year). 
(9) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 

Source: Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

10 

all variables y-o-y % change unless otherwise stated2003-072008-122013-17201820192020202120222023Housing marketHouse price index, nominal.-12.52.55.63.44.74.4..House price index, deflated.-16.20.71.7-1.92.2-1.1..Overvaluation gap (%) (7).24.0-13.4-15.4-18.6-13.7-15.2..Price-to-income overvaluation gap  (%) (8).36.4-13.9-27.7-31.8-25.5-27.5..Residential investment (% of GDP)1.92.92.52.02.22.42.6..Government debtGeneral government balance (% of GDP)-1.6-6.1-1.8-2.8-4.3-9.3-7.1-7.5-6.3General government gross debt (% of GDP)16.327.037.434.735.347.248.850.952.6Banking sectorReturn on equity (%)23.06.00.714.315.212.5...Common Equity Tier 1 ratio10.917.119.216.418.420.1...Gross non-performing debt (% of total debt instruments and total loans and advances) (9)1.46.811.43.93.33.0...Gross non-performing loans (% of gross loans) (9)..12.65.04.33.93.7..Cost of borrowing for corporations (%)..4.95.8..4.6..Cost of borrowing for households for house purchase (%)..4.45.85.54.83.7..forecast 
   
 
 
 
3.  THEMATIC CHAPTER: EXTERNAL IMBALANCES 

Demand, trade and current account balance  

The  fiscal  deficit  has  contributed  markedly  to  the  net  external  borrowing  of  the  Romanian 
economy,  even  before  the  COVID-19  crisis.  The  government’s  net  borrowing  position  in  2021 
amounted to 7.1% of GDP, down from 9.3% in 2020, after increasing  fiscal deficits between 2015 and 
2019.  At  the  same  time,  the  net  borrowing  position  of  households  is  estimated  to  have  worsened 
somewhat, remaining negative, while the estimated net lending of corporations is set to slightly increase 
for both 2021 and 2022. Overall, the net lending/borrowing position of the total economy worsened from 
-4.2% in 2020 to -5.4% in 2021 of GDP. Only very gradual improvements are forecast for the next two 
years, in line with current account projections. 

From  the  balance  of  payments  perspective,  the  current  account  deficit  widened  further  in  2021, 
primarily due to a larger deficit in trade in goods. Romania's current account has deteriorated from an 
almost balanced position in the middle of the 2010s to a deficit of around 5% of GDP at the end of 2020, 
with  the  fast  growing  imports  fuelled  by  the  brisk  increase  in  domestic  consumption.  Due  to  the  swift 
rebound  from  the  COVID-19  recession  in  2021,  net  exports  registered  a  further  deterioration.  The 
increase in the trade deficit in goods was partly driven by a widening negative energy balance. In 2021 
and early 2022, external demand for Romanian exports  was affected by the slow economic recovery of 
some  major  trade  partners  as well  as  by  supply-side  bottlenecks.  Smaller  contributions  to  the  widening 
current  account  deficit,  which  moved  from  5%  of  GDP  in  2020  to  7.0%  in  2021,  came  from  a  slight 
increase in the primary income deficit (which moved from 1.5% to 1.8%) but also from lower surpluses in 
international trade in services and in the secondary income account (See Graph 3.1(b)).  

Romania continues gaining export market share despite a recent slowdown. Romania's export market 
shares  increased  by  1.6%  in  2019  and  by  a  further  2.4%  in  2020.  Over  2015-2020  they  increased  by 
20.6%,  among  the  top  three  Central  and  Eastern  European  Member  States  and  the  fifth  across  the  EU. 
According  to  the  Standard  International  Trade  Classification,  in  2020  main  export  products  included 
machinery  and  transport  equipment  (with  almost  half  of  the  total  share),  other  manufactured  goods 
(accounting for about a third of the total) and food, drinks and tobacco. On the import side, the structure 
is  broadly  similar,  with  machinery  and  transport  equipment  taking  a  lower  share  of  around  37%,  and 
followed by other manufactured goods (30%) and by chemicals and related products (15%).  

The  current  account  balance  remains  well  below  the  levels  explained  by  economic  fundamentals. 
The  current  account  balance  also  worsened  in  cyclically-adjusted  terms,  to  -8.1%  of  GDP  in  2021, 
leading to a higher current account gap, i.e. distance to current account norm, which itself amounts to a 
small  surplus  of  0.2%  of  GDP  (Table  3.1).  It  is  estimated  that  domestic  currency  exhibits  an 
overvaluation of about 10% with respect to the real effective exchange rate that would be consistent with 
the current account equal to the norm, i.e. consistent with closing the current account gap (22). 

The  current  account  balance  is  forecast  to  marginally  deteriorate.    The  projected  increase  in 
international energy prices is  expected to push even further into negative territory the trade balance for 
the next year (Graph 3.1(a)), reflecting the fact that Romania is a net importer of energy. This places the 
current account deficit on a slightly more negative trend of 7.4% and 7.3% of GDP for 2022 and 2023, 
respectively (see Graph 3.1(b)).  

External financial flows dynamics  

On  the  financing  side  of  the  external  accounts,  the  composition  of  flows  reverted  to  direct 
investments. In 2020, the net external financing needs were mostly met by increases in the government’s 

(22)  See  Salto,  M.  and  Turrini,  A.  (2010),  "Comparing  alternative  methodologies  for  real  exchange  rate  assessment",  (European 

Economy, Economic Papers 427) 

11 

 
                                                           
3. Thematic chapter: External Imbalances 

external  debt  liabilities  amid  the  high  government  financing  needs,  after  years  of  reliance  on  foreign 
direct investment (Graph 3.1(c)). Net foreign direct investment inflows, as a share of GDP, dropped from 
2.2%  in  2019  to  just  1.4%  in  2020  (sum  of  the  last  four  quarters).  The  drop  in  this  external  financing 
instrument was compensated by an increase in the net debt portfolio investments, from 1.4% of GDP in 
2019, to 6.7% in 2020, mainly driven by the government sector, which recorded an increase from 1.7% to 
6% of GDP over the same period. However, the trend in financing gradually reversed over 2021, with net 
foreign direct investments amounting to 3% of GDP and debt portfolio investments to 1.5%. The large 
decline in net debt portfolio inflows in 2021 is mainly due to government raising less debt abroad, with 
net flows of government portfolio debt declining from 6% of GDP in 2020 to 1.9% in 2021. The central 
bank’s external liabilities in the form of other investment increased by 0.9 of GDP. The net acquisition of 
other investment assets of Romanian residents went slightly below zero, after reaching 2.8% of GDP in 
2020. 

Government  financing  needs  remained  well  serviced  during  the  COVID-19  crisis  but  financing 
conditions have tightened more recently. Increased global uncertainty and financial markets tensions in 
the months following the COVID-19 outbreak did not affect the government’s ability to meet its external 
financing  needs.  In  2021,  the  share  of  government  debt  denominated  in  foreign  currency  maintained 
roughly  the  same  level  as  in  2020,  reaching  51.3%,  but  the  share  of  general  government  external  debt 
increased  to  50.9%  in  2020,  up  from  46.3%  a  year  before.  This  trend  will  likely  continue  in  the  short 
term, with the Ministry of Finance estimating that about 70% of the 2022 budget deficit is expected to be 
financed  from  external  sources.  Financial  markets’  perception  regarding  the  sustainability  of  the 
Romanian  public  debt  remained  broadly  unchanged  for  2021,  with  the  reading  of  the  three  agencies 
ratings  indicating  that  the  Romanian  sovereign  debt  is  staying  at  the  lowest  investment  grade. 
Government bond yields benefited from an Assets Purchase Programme launched by the National Bank 
of  Romania  in  the  spring  of  2020,  which  reduced  markedly  the  borrowing  costs.  However,  since  the 
beginning of 2021, the yields have increased again to more than 6% for the 10-year bond in early 2022, 
against  the  background  of  higher  inflation  and  a  change  in  the  monetary  policy  stance  with  policy  rate 
rises since late 2021.  

Developments in external stock positions  

The  negative  net  international  investment  position  of  Romania  improved  slightly  in  2021,  mainly 
due to strong nominal GDP growth. In 2020, the net international investment position (NIIP) worsened 
to  -47.9%  of  GDP,  from  -43.6%  a  year  before.  However,  by  2021  the  NIIP-to-GDP  ratio  improved  to 
about -45.7% of GDP (Graph 3.1(d)). While the contribution from net financial flows to the change in the 
NIIP-to-GDP  ratio  in  2021  was  negative,  amid  negative  net  lending/borrowing  over  the  period,  the 
positive impact of GDP growth, augmented by some positive valuation effects, prevailed.  

While the NIIP remains close to prudential levels, it is considerably worse than what fundamentals 
would suggest. The NIIP norm, i.e. the level suggested by fundamentals, currently stands at -6% of GDP 
(Table 3.1). (23) The recently recorded and forecast current account balances are considerably below those 
required  to  halve  the  gap  to  the  NIIP  norm  in  ten  years  (Table  3.1),  but  also  somewhat  below  levels 
needed to stay around the prudential NIIP benchmark over the same period (equalling almost  -4%-5.4% 
of  GDP).  Similar  to  positions  of  other  Central  and  Eastern  Europe  Member  States,  the  Romanian  NIIP 
contains  a  significant  share  of  FDI  stocks  on  the  liabilities  side,  rendering  the  debt  component  of  their 
NIIP  much  more  limited.  This  is  captured  by  the  NIIP  excluding  the  non-defaultable  instruments 
(NENDI): in 2021 it amounted to -6.7% of GDP, thus remaining broadly stable. The sectoral breakdown 
of the  NIIP (Graph 3.1(e)) indicates that  the  worsening of  the government external  net  stocks  halted in 
2021 and remained generally contained at around  -22% of GDP. Private sector, including the monetary 
and  financial  institutions  positions,  recorded  a  small  improvement,  while  the  central  bank  (including 
reserves) remains the sole net positive contributor, accounting for 18.4% of GDP in 2021. 

Foreign exchange reserves slightly decreased in absolute terms, but the share of debt denominated 
in foreign exchange stays relatively high. As a share of GDP, the foreign exchange reserves went down 

(23)  The country-specific prudential benchmark denotes the NIIP level beyond which the probability of an international economic 
and financial crisis becomes higher. The NIIP level explained by fundamentals  (‘NIIP norm’)  represents the NIIP that would 
result if a country had run its current account in line with fundamentals since 1995. For details see Turrini and Zeugner (2019), 
"Benchmarks for Net International Investment Positions", European Economy, Discussion Paper 097/2019. 

12 

                                                           
3. Thematic chapter: External Imbalances 

from  19.5%  at  the  end  of  2020  to  close  to  19.1%  in  at  the  end  of  2021.  The  decrease  came  despite 
positive flows of reserve assets, which amounted to 0.9% of GDP over 2021. In terms of months of goods 
and  services  imports  coverage  they  have  also  slightly  diminished,  currently  registering  4.9  from  5.6 
months at the end of 2020 due to the high increase in imports, but they still stay above the recommended 
levels.  Moreover,  in  2021,  reserves  remained  at  around  220%  of  (estimated)  short-term  external 
liabilities, with an ample margin over the 100% benchmark. In addition, short-term external assets (other 
than  reserves)  are  roughly  equal  to  the  short-term  external  liabilities.  A  relatively  high  share  of  both 
private and public debt is denominated in foreign currencies and thus exposed to exchange rate valuation 
risk.  The  share  of  government  debt  denominated  in  foreign  currency  amounted  to  49.9%  at  the  end  of 
2021,  roughly  unchanged  from  the  value  registered  a  year  ago.  For  households,  the  share  of  domestic 
loans  in  foreign  exchange  is  lower,  with  a  20.8%  in  2020  and  followed  a  downward  trend  recently. 
However, the share of non-financial corporations’ bank loans denominated in foreign exchange is higher 
than for households, at around 40.3% at the end of 2020 and at 37.2% in 2021, albeit also displaying a 
negative trend.  

Risks for external positions and flows 

While global financial flows normalised after the beginning of the pandemic, new risks are looming. 
There may still be some financing risks ahead given the likely tightening of global financing conditions 
and Russia’s war in Ukraine. Risks are mitigated by central bank reserves that stand at levels higher than 
prudential benchmarks. The nominal effective exchange rate of the Romanian currency remained rather 
stable, with depreciation of slightly over 1% by December 2021, as compared to the same month in 2020. 
This  is  important  as  non-negligible  shares  of  both  domestic  and  external  debt  assets  and  liabilities  are 
denominated in foreign currencies.  

Given Russia’s invasion of Ukraine many possible adverse shocks relevant for Romania’s external 
positions could  materialise. In principal, price effects, especially of energy and food, could negatively 
affect the trade balance and the current account balance. If price increases are large enough, such effects 
could  negatively  impact  the  external  flows  and  stocks  (at  least  in  the  short-run),  even  if  existing 
vulnerabilities,  namely  fiscal  deficits  and  booming  consumption,  recede.  Furthermore,  both  consumers 
and investors could react to such events in their search for safety and the government  sector could feel 
pressures to increase spending due to the extraordinary circumstances.      

Long-term  projections  underline  the  importance  of  fiscal  consolidation  and  steps  towards 
successful implementation of the RRP. Baseline scenario (see Graph 3.1 (f)) assuming the same trend 
of trade deficits over the forecast horizon, suggests that Romania would reach a negative NIIP of around 
–84% of GDP by the end of 2031. Scenario 1 assumes Romania would undergo a fiscal consolidation in 
line with EDP recommendation and would be capable of absorbing the full amounts allocated under the 
RRP,  thus  becoming  more  competitive  in  international  trade.  The  resulting  projection  still  implies  a 
worsening NIIP, although less negative than in the baseline by close to 9 pp. of GDP by the end of 2031. 
Contrary to Scenario 1, Scenario 2 assumes the incapacity to stay within the lines recommended by the 
EDP,  (thus  exercising  a  pull  for  imports  due  to  a  stimulated  economy)  and  assumes  a  less  successful 
absorption of RRF funds, thus  making the  economy less competitive than in the baseline scenario. The 
implied  NIIP  standing  is  worse-off  by  almost  16pp.  of  GDP  compared  with  Scenario  1  and  by  around 
7pp. of GDP compared with the baseline scenario. This is certainly a worsening compared to the current 
standings or the recommended benchmark and puts the economy on an unsustainable path with respect to 
the external sector.  

13 

 
 
 
 
 
Table 3.1: 

Selected external indicators, Romania 

3. Thematic chapter: External Imbalances 

Abbreviations: NA=National Accounts, BoP=Balance of Payments, CA=Current Account, NENDI= NIIP excluding non-
defaultable instruments, VA= Value Added, TB= Trade Balance.  
(1) Flow data refer to national account concept, unless indicated otherwise. 
(2) Cyclically adjusted CA is the CA adjusted for the domestic and foreign output gaps, taking into account trade openness.  
 (3) The average CA needed in order to stabilise the NIIP is based on European Commission “T+10” medium-term projections.  
(4) The CA explained by fundamentals refers to the expected CA given the level of its fundamentals with respect to world 
average.  
(5) The CA or TB needed either to halve the distance to fund. NIIP benchmark, or to reach the prud. NIIP benchmark in 10Y, 
whichever is higher. Based on European Commission “T+10” medium-term projections. 
(6) In case private-sector FDI is not available, total economy FDI is displayed.  
(7) VA imports as % of aggregate demand describes the % of aggregate demand that  is sourced from foreign value added.  
(8) More information on benchmark indicators methodology can be found on B1 intranet. 
Source: (a) Eurostat, (b) AMECO, (c) European Commission calculations, (d) WIOD database 

14 

2003-072008-122013-1720182019202020212022f2023fFlows (1)Source:CA balance as % of GDP, NA(b)-9.6-6.3-1.1-4.4-5.3-5.8-7.0-7.5-7.3CA balance as % of GDP, BoP(a)-9.5-6.3-1.3-4.6-4.9-5.0-7.0-7.4-7.3Cyclically adj. CA balance as % of GDP (2)(c)-7.7-6.3-1.1-3.8-4.7-6.1-8.1-9.2-9.2CA req. to stabilize NIIP above -35% (3)(c)-3.3-3.6-4.8-4.3-4.0-3.7-3.9-3.5-3.1CA explained by fundamentals (CA norm) (4),(8)(c)-1.8-0.8-0.40.10.20.30.20.40.5Required CA for specific NIIP target (5)(c)-2.1-1.8-2.6-1.9-1.6-1.3-1.2-0.9-0.5Trade bal. G&S, % of GDP, NA(b)-10.7-7.4-1.1-3.4-4.1-4.3-5.7-6.4-6.7Required TB for specific NIIP target (5)(c)-3.5-1.8-2.2-1.1-0.8-0.30.00.51.0StocksNENDI as % of GDP(a)-6-22-12-4-4-7-7of which: net portfolio debt(a)-3-3-11-11-13-20-18of which: net mutual fund shares(a)0000000of which: net other investment(a)-25-45-24-10-8-6-8NIIP as % of GDP(a)-37-62-54-44-44-48-46-47-48Prudential NIIP/NENDI benchmark (8)(c)-28-34-37-44-46-46-47-47-47Fundamentally expl. NIIP benchmark (NIIP norm) (8)(c)-10-10-11-9-8-8-7-6-5Gen. Government NIIP(a)-7-12-18-15-15-24-22Private Sector NIIP(a)-44-41-40of which: Net FDI (6)(a)-32-39-37-35-34-36-34MFI (excl CB) NIIP(a)-21-22-12-5-4Oth. financials NIIP(a)-2-2-2Central bank NIIP(a)2218172018of which: Reserves(a)2318172019of which: Target2(a)Value-added trade and capital accountVA imports % of agg. demand (7)(d)322931Capital account bal. as % of GDP, NA(b)0.70.92.41.21.51.61.61.61.6Indicators in % of potential GDPCA balance as % of potential GDP, NA(b,c)-10.0-6.3-1.1-4.5-5.4-5.5-6.9-7.3-7.1CA balance as % of potential GDP, BoP(a,c)-9.9-6.3-1.3-4.7-5.0-4.7-6.8-7.2-7.1Cyclically adj. CA balance as % of potential GDP (c)-8.1-6.2-1.1-3.9-4.8-5.8-7.9-8.9-9.0Trade bal. G&S, as % of potential GDP, NA(b,c)-11.1-7.5-1.1-3.5-4.2-4.1-5.5-6.2-6.5NENDI as % of potential GDP(a,c)-6.5-21.9-11.8-4.0-4.1-6.7-6.5NIIP as % of potential GDP(a,c)-39.4-60.9-53.7-44.6-44.5-45.7-44.6-45.7-46.9Capital account bal. as % of potential GDP, NA(b,c)0.70.92.41.31.51.51.61.51.6 
 
 
  
 
Graph 3.1: 

Thematic Graphs: External position 

3. Thematic chapter: External Imbalances 

Source: European Commission services 

15 

40050060070080090010001100070809101112131415161718192021*22*23*Constant 2015 million of nat. currency(a) Demand, output and trade balanceTrade balanceAgg. demandOutput (GDP)Source: Ameco-15-10-50510141516171819202121*22*23*% of GDP(b) Current account decompositionGoods, fcastServices, fcastPhys goods excl energyEnergy balanceMerch & other non-physServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowingSource: Eurostat BoP, AMECO, ECFIN calculations. Note: forecast period uses NA-based figures. Total balance of goods is shown for the forecast period.-120-100-80-60-40-2002040070809101112131415161718192021*% of GDP(d) Decomposition of NIIP by instrumentFin derivatives and ESODirect investmentOther investmentPortfolio inv, debtPortfolio inv, equityReserve assetsNIIPNENDISource: Eurostat-90-70-50-30-10103015Q316Q317Q318Q319Q320Q321Q3% of GDP(e) Decomposition of NIIP by sectorGeneral governmentPrivate sector incl MFIPrivate sectorMFI (excl central bank)Central bank (incl reserves)Net int'l investment position (NIIP)Source: Eurostat. Note: for the period between 17Q1-18Q2 and after 20Q1, separate data for -20-15-10-50510070809101112131415161718192021*% of GDP(c) Financial flowsDirect investment (net)Portfolio investment, equity and inv. fund shares (net)Portfolio investment, debt securities (net)Other investment (net)Official reserves (net)Financial derivatives and ESO (net)Net errors and omissionsCurrent account balanceNet lending/borrowing (CA+KA)Source: Eurostat-100-90-80-70-60-50-40-30-20-10021222324*25*26*27*28*29*30*31*% of GDP(f) NIIP projectionsBaselineScenario 1Scenario 2Source: Ecfin staff calculationsNotes: Scenario 1: higher trade balance on account of fiscal consolidation and increased export competitiveness driven by the RRP. Scenario 2: lower trade balance amid higher fiscal deficits combined with lower exports competitiveness due to lower RRP absorption.