Balkan Insight, December 21, 2006

Romania: Buoyant Economy Braces for Challenge of EU, by Radu Busneag

Overall, economists say Romania’s economy is growing fast and is defying earlier gloomy forecasts. However, some analysts warn of dangers that lie ahead, mainly as a result of the country’s large current account deficit.
Recently, the World Bank drew attention to this, noting that as demand in Romania continues to exceed supply, the current account deficit is growing, already topping ten per cent of GDP.
Strong capital inflows, mostly in the form of foreign direct investment, FDI, coupled with rapid growth in domestic credit, feed the rising demand.
Along with foreign investments in physical assets, more volatile cash inflows are also increasing, with a substantial portion of FDI going into the banking sector.
Analysts predict that such flows will remain strong, motivated by investment opportunities associated with European Union integration.
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