Report Highlights Weaknesses in Romania's Recovery

"It's a paradox here, as Romania is both at the top of economic growth in Europe but also among the poorest countries in the European Union," Angela Filote, head of the European Commission Representation in Romania said on Wednesday, presenting the latest Report on Romania.

"Romania's model of growth is not based on people's interest as economic competitivness is achieved with low salaries and not by high efficiency, and the low rate of the budget deficit is reached by cutting public investments," Filote added.

While praising Romania's strong economic growth registered in the last three years, the Commission report recommends stimulation of investment, pursuit of structural reforms to modernise the economy and responsible fiscal policies.

Real GDP is estimated to have increased by 3.6 per cent last year on account of surging consumption and recovering investment, the report says.

The pace of growth is forecast to accelerate to 4.2 per cent in 2016 in response to the significant fiscal stimulus, including tax cuts and increases of the minimum wage and public wages.

But the report also says that fiscal expansion, stimulating primarily domestic consumption, in the context of an already robust economic growth, without supplementary supply-side measures, could lead to new internal and external imbalances.

"Potential growth is constrained by inefficient public investment planning and coordination, the lowest EU funds absorption rate, an unfavourable business environment, low research and development intensity and protracted structural reforms, including of state-owned enterprises," the report says.

Other aspects analysed in the report that signal specific challenges for the economy are the efficiency of...