RO: ESI down at the end of 3Q24
The Economic Sentiment Indicator (ESI) came in lower in September at 103.4, compared to 104.0 in August, due to reduced confidence in the industry and services sectors. However, morale in retail trade received a notable boost this month, while construction sentiment remained almost unchanged, and consumer confidence experienced a slight uptick. At the EU-wide level, economic activity appeared to stagnate in September 2024, with the index remaining flat at 96.7 compared to the previous month.
The average ESI in 3Q24 stands at 103.3 vs 103.8 in 2Q24. This might indicate that the economy is slowing down in quarterly terms and a slightly negative quarterly figure should now be ruled out. Considering the structure of 2Q24 growth and assuming consumption remains robust, the evolution of net exports will be detrimental for GDP growth for the rest of the year. Our call of +1.9% GDP growth in 2024 might be under threat of a downward revision. However, GDP data in Romania is often subject to large historical data revisions and on October 10th the National Institute of Statistics will release three GDP related news: the final data for the GDP growth in 2022, the semi-final data of GDP growth in 2023 and the second reading of 2Q24 GDP growth. Significant data revisions are to be expected and some might affect the figure for this year. For example, all high frequency indicators are showing a positive quarterly growth rate in 4Q23, but the GDP growth came negative. This influences the 2024 figure due to the so-called carry-over effect. Also, the quarterly growth rate for 2Q24 might be revised up in line with signals gave by high frequency indicators including ESI. For next year we expect a +2.8% GDP growth, though uncertainty is high due to highly probable fiscal consolidation measures.
Manufacturing confidence came at -0.9 in September vs -0.6 in August. Managers reported almost flat order book levels, higher inventories and became more pessimistic about future production. The average index for manufacturing in 3Q24 stands at -0.8 which is lower compared to -0.3 in the previous quarter. Industry might again have a negative contribution to the annual GDP growth in 3Q24 after a -0.1pp contribution is 2Q24, which is also in line with the signals gave in the first two months of the quarter by BCR Romania Manufacturing PMI. Industrial output in Romania might have a second consecutive year of contraction.
Services confidence went down to 5.3 in September vs 6.9 in August on a deterioration of all three components included for the headline calculation. Worse past business development, lower demand and more pessimistic expectations for the future were reported. The average index for 3Q24 stands at 5.6 down from 6.5 in 2Q24. Services have been trending downward for quite some time now and it has taken a toll on GDP growth in recent quarters.
Consumer confidence improved to -11.8 in September from -12.1 in August and remained above the long-term average of -17.6. Financial situation over last 12 months went up and future financial situation expectations went down maybe on worries regarding possible tax hikes next year. The general economic situation over next 12 months came slightly better. The intentions for a major purchase in the next 12 months went down. On average, consumer confidence was higher in 3Q24 at -12.9 from -13.2 in 2Q24. This is evidence that consumption is expected to remain strong.
Retail trade confidence was much brighter and came in at 11.3 in September vs 4.7 in August as strong past business situation determined lower volume of stock currently on hold and a bump in enthusiasm regarding future business. However, the average index for the quarter is slightly lower at 8.1 from 8.6 in 2Q24. It is possible that private consumptions positive influence over GDP growth to be more moderate in 3Q24.
Construction sentiment improved slightly to -4.8 in September vs -4.9 in August, with flat current order book evolution and slightly better employment expectations. On average construction sentiment was higher in 3Q24 at -5.1 from -5.7 in 2Q24.
Selling-price expectations increased in all the surveyed sectors expect construction which reported flat numbers in September.
Employment Expectations Indicator (EEI) decreased to 102.5 in September vs 103.2 in August with lower numbers expected in manufacturing, unchanged view for services and higher demand for labor force in retail trade and construction.