Romania Outlook: Pre-election public spending bonanza

The government pursued an agenda of raising public sector incomes in a heavy election year. Public sector wages increased by nearly 20%, while public pensions were hiked at almost double that pace. Consequently, the budget deficit topped 4.0% of GDP after seven months and the government updated its financing plans, corresponding to a budget deficit of 6.9% of GDP vs. 5.0% in the initial plans. With structural issues unaddressed, the boom in domestic consumption was almost entirely offset by a negative contribution from net exports to economic growth. State infrastructure investments, mostly funded by EU money, are well underway and should start to pay dividends in the years to come.