statistics of macro economic agragates
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STATISTICS OF MACROECONOMIC
AGGREGATES.COMPARISON BETWEEN ROMANIA
AND GERMANY
Ionescu CristinaLuciana
Alecsandrescu Monica Ionela
Dragomir VasileValentin
Business Communication Master
1st Year
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STATISTICS OF MACROECONOMIC AGGREGATES
Economics is the science that studies theproduction, distribution, andconsumption of
goods andservices.
Economics is divided into microeconomics and macroeconomics.
1. There are four principal ways in which macroeconomics differs from microeconomics:it focuses on how the accumulated effects of individual actions can lead to unintended
macroeconomic outcomes; it allows greater scope for government intervention; it studies
long-run growth; it uses economic aggregates, measures that summarize data across
various markets for goods, services, workers and assets. Modern macroeconomics arose
from efforts to understand the Great Depression.
One key concern of macroeconomics is the business cycle, the short-run alternation
between recessions, periods of falling employment and output, and expansions, periods of
rising employment and output. Modern macroeconomics arose largely to prevent the
occurrence of another depression, a deep, prolonged economic downturn. The labour
force, the sum of employment and unemployment does not include discouraged workers.
non - working people capable of working but who have given up looking for a job. Labour
statistics also do not contain data on underemployment employed workers who earn less
than they would in an expansion due to lower-paying jobs or fewer hours worked. The
unemployment rate, which is usually a good measure of conditions in the labour market,
has arisen and fallen repeatedly over time. Aggregate output, the total level of output of
final goods and services in the economy, moves in the opposite direction of
unemployment over the business cycle.
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Taking all above-mentioned into account, macroeconomics studies the structure,
functioning and the overall behavior of the economy as a whole - ,, with booms and recessions,
the economys total output of goods and services and the growth of output, the rates of inflation
and un employment, the balance of payments over long periods of time and with the short-run
fluctuations that constitute the business cycle. Thus its main task is to explain relation among
aggregates of a national economy and its main goal is to explain the way in which the level of
the national economic activity is established at a certain period in time.
2. The basic macroeconomic aggregates are: Gross Domestic Product (GDP),
Consumption, Investment, Government purchases, Net exports, Imports, Inflation,
Unemployment, Population etc.
Here are explained some of the macroeconomic aggregates:
a) Gross Domestic Product (GDP): - the value of output produced within a country in a
certain period of time (over a 12-month period).
From the point of view of statistics there arefour approaches of estimating GDP:
- The production approach - that is to add up the value of all goods and services produced in
the country industry by industry. We focus on firms and add up their production.
- The consumption approach
It is based on the equation:
GDP = Cp + Cg + FBC + EN where:
Cp = Private Consumption;
Cg = Government purchases;
Cp + Cg = Final Consumption;
FBC = Investment (Gross Fixed Capital Formation);
EN = Net Exports = Exports Imports.
- The income approach refers to the production of goods and services, generates incomes for
households in the form of wages, salaries, interest, rent and profits. This method is to add up all
these incomes.
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GDP (at market prices) =GVA + taxes on products Subsidies on products
GVA = Gross value added at basic prices is the sum of all the values added by all industries in
the economy over a year. The figures exclude taxes on products (such as VAT) and include
subsidies on products.
- The expenditure approach. This approach focuses on the expenditures necessary to purchase
the nations production. In this simple model of the circular flow of income, with no injections or
withdrawals, whatever is produced is sold. The value of what is sold must be the value of what is
produced. The expenditure approach measures this sales value.
The output includes: consumer expenditure (C), government expenditure, investment
expenditure (I), exports on goods and services (X). We have to subtract imports of goods and
services (M) from the total, in order to leave just the expenditure on domestic product. So, we
have to subtract the part of consumer expenditure, government expenditure and investment that
goes on imports and also the imported component (e.g. raw materials) from exports. Thus, GDP
(at market prices) = C+G+I +X-M.
Because of the way the calculations are made, the four ways of calculating GDP must yield the
same result.
In other words: National product=National income=National expenditure=National
consumption.
An important distinction is made betweenNominal GDPandReal GDP.
Nominal GDP(also called money GDP) measures GDP in the prices ruling at the time and
does not take account of inflation.
Real GDPmeasures GDP in the prices that ruled in some particular year. Thus we can measure
each years GDP. This will enable us to see how much real GDP had changed from one year to
another.
The GDP Deflator = a measure of the price level calculated as the ratio of nominal GDP to
real GDP times 100:
GDP Deflator= Nominal GDP . 100
Real GDP
b) Unemployment
Unemployment fluctuates with the business cycle. It can be expressed either as a number or as
a percentage.
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The number of the people unemployed includes those of working age, who arent working, but
who are available for work at current wage rates.
If unemployment is expressed as a percentage, the percentage represents the total labour force
which means the people employed plus the people unemployed.
For example if 25 million people were employed and 1.5 million people unemployed, the
unemployment rate would be: (1.5/25 +1.5)x 100 = 5.7%.
The official measures of unemployment are: claimant unemployment and standardized
unemployment rate.
Claimant unemployment is a measure of all those in receipt of unemployment related
benefits. The statistics exclude those of working age who are available for work at current wage
rates, but who are not eligible for benefits. Examples of people who are ineligible for benefits:
the temporary unemployed, people over 55, people seeking part-time work.
Standardized unemployment rate
Here the unemployed are the people of working age who are without work, available to start
work within two weeks and actively seeking employment or waiting to take up an appointment.
The duration of unemployment
Unemployment lasts only a certain period of time. The duration of unemployment is determined
by three factors: the number of unemployed individuals (also known as the size of the stock of
unemployment; the higher the stock of unemployment, the longer the duration of unemployment.
Thus more people will compete for vacant jobs), the rate of inflow and outflow from the stock of
unemployment (inflow the people that quit their jobs; outflow the people that find jobs).
The duration of unemployment will depend on the rate of inflow and outflow. The rate is
expressed as the number of people per period of time.
The phase of the business cycle - once a recession has lasted for a period of time, people on
average will have been out of work longer, and this long-term unemployment is likely to persist
even when the economy is pulling out of recession.
The composition of unemployment
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Unemployment rates vary enormously between countries and between different groups within
countries. We can talk about geographical differences, sex difference, age differences and ethnic
differences.
Geographical differences
Unemployment varies from country to country and also varies substantially within a country
from one area to another. Most countries have some regions that are more prosperous than others,
inner-city unemployment is very much higher than suburban or rural unemployment.
Differences in unemployment rates between women and men
In many countries, female unemployment has traditionally been higher than male
unemployment (differences in education and training, discrimination by employers etc), but in
recent years male unemployment rates are higher than female. The main reason is the decline in
many of the older industries, such as coal and steel, which employed mainly men.
Differences in unemployment rates between different age groups
Unemployment rates in the under-25 age group are higher than the average, and substantially
so in many countries. There are various explanations for this, including the suitability (or
unsuitability of the qualifications of school leavers, the attitudes of employers to young people and
the greater willingness of young people to spend time unemployed looking for a better job or
waiting to start a further or higher education course.
The causes of unemployment are: equilibrium unemployment and disequilibrium
unemployment.
The equilibrium unemployment level is the difference between those who are employed at a
given wage rate and those who can work. In other words when the aggregate demand for and
supply of labour at the current real wage rate are equal.
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(http://www.encyclo.co.uk/define/Equilibrium%20unemployment,
http://www.oenb.at/dictionary/termini.jsp?EINTRAG_ID=2032)
Disequilibrium unemploymentis unemployment considered to be caused by the aggregate
demand for labor being less than the aggregate supply of labor at the current real wage rate.
(http://encarta.msn.com/dictionary_561546901/disequilibrium_unemployment.html)
c) Inflation
The rate of inflation measures the annual percentage increase in prices. The most usual measure is that
of consumerprices: i.e. retail prices. The inflation rate (II) is calculated from the following formula:
t =Pt Pt-1/Pt-1 x 100 where Pt is the price index for year t and Pt-1 is the price index for the previousyear. Thus, if the price index for year 1 is 149.1 and for year 2 is 149.0, then inflation in year 2 is: 11 =
(149.1 - 140.0 /140.0) x 100 = 6.5 % . A rise in inflation means a fasterincrease in prices. A fall in
inflation means aslowerincrease in prices.
The costs of inflation
If people could correctly anticipate the rate of inflation and fully adjust prices and incomes to
take account of it, then the costs of inflation would indeed be relatively small.
Redistribution
Inflation redistributes income away from those on fixed incomes and those in a weak
bargaining position, to those who can use their economic power to gain pay, rent or profit
increases. It redistributes wealth to those with assets (e.g. property).Retired people may be
particularly badly hit by rapid inflation.
Uncertainty and lack of investment
Inflation tends to cause uncertainty among the business community, especially when the
rate of inflation fluctuates. (Generally, the higher the rate of inflation, the more it fluctuates.) If
it is difficult for firms to predict their costs and revenues, they may be discouraged from
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investing. This will reduce the rate of economic growth. On the other hand, policies to reduce
the rate of inflation may reduce the rate of economic growth, especially in the short run.
Balance of payment
Inflation is likely to worsen the balance of payments. If a country suffers from
relatively high inflation, its exports will become less competitive in world markets. At the
same time, imports will become relatively cheaper than home-produced goods. Thus exports
will fall and imports will rise. As a result, the balance of payments will deteriorate and/or the
exchange rate will fall. Both of these effects can cause problems.
Resources
Extra resources are likely to be used to cope with the effects of inflation. Accountants
and other financial experts may have to be employed by companies to help them cope with
the uncertainties caused by inflation.
The costs of inflation may be relatively mild if inflation is kept to single figures. They can be
very serious, however, if inflation gets out of hand. If inflation develops into 'hyperinflation',
with prices rising perhaps by several hundred per cent or even thousands per cent per year, the
whole basis of the market economy will be undermined.
Causes of inflation
The causes of inflation are: demand-pull inflation and cost-push inflation.
Demand-pull inflation is caused by continuing rises in aggregate demand. It is typically
associated with a booming economy.
Cost-push inflation is associated with continuing rises in costs and hence continuing leftward
(upward) shifts in the aggregate supply. Such shifts occur when costs of production rise
independently of aggregate demand.
With demand-pull inflation, output and hence employment tends to rise. With cost-push
inflation, however, output and employment tends to fell.
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We can distinguish various types of cost-push inflation: Wage-push inflation, Profit-push
inflation, Import-price-push inflation. In all these cases, inflation occurs because one or more
groups are exercising economic power.
Additional causes of cost-push inflation include the following: Tax-push inflation, the exhaustion
of natural resources.
Demand-pull and cost-push inflation can occur together, since wage and price rises can be caused
both by increases in aggregate demand and by independent causes pushing up costs. Even when an
inflationary processstarts as either demand-pull or cost-push, it is often difficult to separate the
two.
Policies to tackle inflation areDemand-side policies and Supply-side policies.
Demand-side policies are Fiscal policy and Monetary policy.
Fiscal policy involves altering government expenditure and/or taxation.
Monetary policy involves altering the supply of money in the economy or manipulating the rate of
interest.
The aim of the supply-side policies is to reduce the rate of increase in costs.
d) External debt
It is the debt owed to creditors outside the country. This debt includes the debt owed to the
governments from other countries, to private commercial banks or the debt owed to IMF or
World Bank. (http://en.wikipedia.org/wiki/External_debt)
According to the IMF external debt is classified into four heads i.e. (1) public and publiclyguaranteed debt, (2) private non-guaranteed credits, (3) central bank deposits, and (4) loans.
However the exact treatment varies from country to country.
World Bank and IMF state that a country can be said to achieve external debt sustainability if it
can meet its current and future external debt service obligations in full, without recourse to debt
rescheduling or the accumulation of arrears and without compromising growth.
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Indicators of external debt sustainability:
There are various indicators for determining a sustainable level of external debt.
-External debt ratio to GDP - the most widely used measure of the debt burden.
-External debt service ratio to GDP or external debt service ratio to exports measure the debt
servicingburden, in conjunction with indicatorslike interest to GDP.
-Ratio of short-term debt to total debt and debt service due to total debt. Both are appropriate
indicators of liquidity issues associated with external debt. As the ratio of short-term debt to
GDP increases or the amounts falling due increase, there will be more questions about the
viability of rolling over existing external debt.
Debt sustainability exercises help to deal with problems of debtor countries. Normally, the
emphasis is on the behaviour of the external debt to GDP ratio. The simplest policy proposition
is that the debt/GDP ratio should either stabilize or decline, although there are no set rules as to
what is an adequate level of debt. The ratio depends on the levels of debt, interest rates and GDP;
and the movements in the real exchange rate. in countries dominated by crisis we can have
recourse to a reduction in the actual level of debt. In the specific case of the public sector
finances, the efforts to stabilize the ratio of debt to GDP will focus on the primary surplus.
Debt restructuring cannot be seen as regular source of financing/refinancing, as it affects future
access to financing. However, at times of crisis they become inevitable. Frequently there is a
serious conflict among creditors at the time of debt restructuring exercises. Solutions are required
including the development of qualified majorities and the use of neutral arbitrators.
(http://www.development-finance.org/en/component/docman/cat_view/59-debt-strategy.html?
start=26)
e) Commerce is a division of trade or production which deals with the exchange of goods and
services from producer to final consumer. It comprises the trading of something of economic
value such as goods, services, information, or money between two or more entities. Commerce
involves trade and aids to trade which help in the exchange of goods and services. Today
commerce includes a complex system of companies that try to maximize their profits by
offering products and services to the market (which consists both of individuals and other
companies) at the lowest production-cost. There exists a system of International trade, whichsome argue has gone too far. (http://en.wikipedia.org/wiki/Commerce)
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We have two branches of commerce: exportand import.
Exportis when you trade something out of the country. In economics, an export is any good or
commodity, transported from one country to another country in a legitimate fashion, typically
for use in trade. Export goods or services are provided to foreign consumers by domestic
producers. Export of commercial quantities of goods normally requires involvement of the
customs authorities in both the country of export and the country of import. The advent of small
trades over the internet, such as through Amazon and e-Bay, have largely bypassed the
involvement of Customs in many countries because of the low individual values of these trades.
Nonetheless, these small exports are still subject to legal restrictions applied by the country of
export.
Methods of export include a product or good or information being mailed, hand-delivered,
shipped by air, shipped by boat, uploaded to an internet site, or downloaded from an internet
site. Exports also include the distribution of information that can be sent in the form of an email,
an email attachment, a fax or can be shared during a telephone conversation.
(http://en.wikipedia.org/wiki/Export)
International trade is exchange of capital, goods, and services across international borders or
territories. It refers to exports of goods and services by a firm to a foreign-based buyer
(importer). In most countries, it represents a significant share of gross domestic product (GDP).
Industrialization, advanced transportation, globalization, multinational corporations, and
outsourcing are all having a major impact on the international trade system. Increasing
international trade is crucial to the continuance of globalization. International trade is a major
source of economic revenue for any nation that is considered a world power. Without
international trade, nations would be limited to the goods and services produced within their
own borders.
International trade is in principle not different from domestic trade as the motivation and the
behavior of parties involved in a trade do not change fundamentally regardless of whether trade
is across a border or not. The main difference is that international trade is typically more costly
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than domestic trade. The reason is that a border typically imposes additional costs such as
tariffs, time costs due to border delays and costs associated with country differences such as
language, the legal system or culture. Another difference between domestic and international
trade is that factors of production such as capital and labor are typically more mobile within a
country than across countries. Thus international trade is mostly restricted to trade in goods and
services, and only to a lesser extent to trade in capital, labor or other factors of production. Then
trade in goods and services can serve as a substitute for trade in factors of production. Instead of
importing a factor of production, a country can import goods that make intensive use of the
factor of production and are thus embodying the respective factor. An example is the import of
labor-intensive goods by the United States from China. Instead of importing Chinese labor the
United States is importing goods from China that were produced with Chinese labor.
(http://en.wikipedia.org/wiki/International_trade)
The term "import" is derived from the conceptual meaning as to bring in the goods and
services into the port of a country. The buyer of such goods and services is referred to an
"importer" who is based in the country of import whereas the overseas based seller is referred to
as an "exporter". Thus an import is any good (e.g. a commodity) or service brought in from one
country to another country in a legitimate fashion, typically for use in trade. It is a good that is
brought in from another country for sale. Import goods or services are provided to domestic
consumers by foreign producers. An import in the receiving country is an export to the sending
country. Imports, along with exports, form the basis of international trade. Import of goods also
requires involvement of the customs authorities in both the country of import and the country of
export and they are often subject to import quotas, tariffs and trade agreements. When the
"imports" are the set of goods and services imported, "Imports" also means the economic value
of all goods and services that are imported.
Now lets talk about the trade barriers. Trade barriers are generally defined as governmentlaws, regulations, policy, or practices that either protect domestic products from foreign
competition or artificially stimulate exports of particular domestic products. While restrictive
business practices sometimes have a similar effect, they are not usually regarded as trade
barriers. The most common foreign trade barriers are government-imposed measures and
policies that restrict, prevent, or impede the international exchange of goods and services.
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f) Investment is the investing of money or capital in order to gain profitable returns, as
interest, income, or appreciation in value. It is related to saving or deferring consumption.
Investment is involved in many areas of the economy, such as business management and
finance no matter for households, firms, or governments. An investment involves the choice by
an individual or an organization such as a pension fund, after some analysis or thought, to place
or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond,
financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign
currency, that has certain level of risk and provides the possibility of generating returns over a
period of time.
The term "investment" is used differently in economics and in finance. Economists refer to a
real investment (such as a machine or a house), while financial economists refer to a financialasset, such as money that is put into a bank or the market, which may then be used to buy a real
asset.
In economics or macro-economics,fixed asset investment or formation (sometimes simply
called investment) is the production per unit time of goods which are not consumed but are to be
used for future production. Examples include tangibles (such as building a railroad or factory)
and intangibles (such as a year of schoolings or on-the-job training like). In measures of national
income and output, gross investment (represented by the variable I) is also a component of
Gross domestic product (GDP), given in the formula GDP = C + I + G + NX, where C is
consumption, G is government spending, and NX is net exports. Thus investment is everything
that remains of production after consumption, government spending, and exports are subtracted
(i.e. I = GDP - C - G - NX). Both non-residential investment (such as factories) and residential
investment (new houses) combine to make up I. Net investment deducts depreciation from gross
investment. It is the value of the net increase in the capital stock per year.
Investment, as production over a period of time ("per year"), is not capital. The time
dimension of investment makes it a flow. By contrast, capital is a stock, that is, an accumulation
measurable at a point in time (say December 31). Investment is often modeled as a function of
Income and Interest rates, given by the relation I = f(Y, r). An increase in income encourages
higher investment, whereas a higher interest rate may discourage investment as it becomes more
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costly to borrow money. Even if a firm chooses to use its own funds in an investment, the
interest rate represents an opportunity cost of investing those funds rather than lending out that
amount of money for interest.
Infinance, investmentis the commitment of funds by buying securities or other monetary or
paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets,
such as gold, real estate, or collectibles. Valuation is the method for assessing whether a
potential investment is worth its price. Returns on investments will follow the risk-return
spectrum.
Types of financial investments includeshares, other equity investment, and bonds (including
bonds denominated in foreign currencies). These financial assets are then expected to provide
income or positive future cash flows, and may increase or decrease in value giving the investor
capital gains or losses.
g) Government purchases represent a component of Keynesian expenditures that can be used
as a tool for a government to influence the business cycle and provide economic stimulation
when it is deemed necessary. (http://www.investopedia.com/terms/g/governmentpurchases.asp)
They are called also government spending or government expenditure. It is classified by
economists into three main types. Government purchases of goods and services for current use are
classed as government consumption. Government purchases of goods and services intended to
create future benefits, such as infrastructure investment or research spending, are classed as
government investment. Government expenditures that are not purchases of goods and services,
and instead just represent transfers of money, such as social security payments, are called transfer
payments. The first two types of government spending, namely government consumption and
government investment, together constitute one of the major components of gross domestic
product. Government spending can be financed by seigniorage, taxes, or government borrowing.
(http://en.wikipedia.org/wiki/Government_spending)
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Statistical Data about the Macroeconomic indicators of Romania and Germany
GDP Growth Rate (%)
Though the economy had a good progress after 2000, better seen in the GDP of
Romania, the current question is if this growth is sustainable after 2009 or not especially when
facing a worldwide crisis. But the future prospects for the economy do not depend only
on external factors. The internal political and economical frame counts as well.
So lets have a look on the driving forces for the progresses in the last years. At first, an
important part of growth in Romania was more a catch-up effect: when starting from a low level,
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-6
-4
-2
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Romania
Germany2.2
4.8 4.5 4.9
8.1
4.1
7.7
67.1
-4.8
1.5
3
0.4 0.4-0.1
1.7
0. 9
2.72.5
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even small achievements seem like big steps after they have been transformed into percentages.
In absolute terms the GDP of Romania keeps being on a very low level, though it is certainly not
idle and reached even more than a good third of the European average. An important driver
for growth and development in Romania has been foreign direct investment. This is typically
limited to the few developed economic centers. That is to say that FDI in Romania keeps being
crowded in some developed cities of Romania. As a result the economy has to face sharp
shortages on local labor markets, which again set low upper boundaries to the progresses
experienced after 2000. In addition much of the FDI in Romania is yet rather labor intensive
not based on technology. Romania seems highly vulnerable to the current crisis 2009, though,
some export advantages, like in the case of Dacia, are also to be observed in early 2009. Growth
will certainly continue, but on a much lower level. Estimations for 2009 2013 range from a
little bit more than 0 to some 4%. Negative growth is seldom assumed. Overall, Romania
certainly did great progresses in the past years, and it will continue to do so. However, upper
boundaries for the future are currently low as the business environment(such as
infrastructure and human capital) need significant improvements. But the political frame and
governance are weak, and resemble rather southern Italian style. Hence, Mezzogiorno is a much
more likely scenario for the future, rather than the Hungarian or Czech model. Romania could
easily remain an additional case like South Italy in united Europe.
The German economythe fifth largest economy in the world in PPP terms and Europe's
largestbegan to contract in the second quarter of 2008 as the strong euro, high oil prices,
tighter credit markets and slowing growth abroad took their toll on Germany's export-dependent
economy. At just 1 percent in 2008, GDP growth is expected to be negative in 2009. Recent
stimulus and lender relief efforts will make demands on Germany's federal budget and undercut
plans to balance its budget by 2011. The reforms launched by the former government of
Chancellor Gerhard Schroder, deemed necessary due to chronically high unemployment and low
average growth, led to strong growth in 2007, while unemployment in 2008 fell below 8 percent,
a new post-reunification low. Germany's aging population, combined with high chronic
unemployment, has pushed social security outlays to a level exceeding contributions, but higher
government revenues from the cyclical upturn in 2006-07 and a 3 percent rise in the value-added
tax cut Germany's budget deficit to within the EU's 3 percent debt limit in 2007. The current
government of Chancellor Angela Merkel has initiated other reform measures, such as a gradual
16
http://www.romania-central.com/economy-of-romania/the-economy-of-romania/32-macroeconomic-development-in-romania-1989-2006/322-sector-development-in-romania/3221-romanias-real-sector/http://www.romania-central.com/country-profile-romania/http://www.romania-central.com/economy-of-romania/the-economy-of-romania/35-fdi-location/http://www.romania-central.com/country-profile-romania/http://www.romania-central.com/economy-of-romania/the-economy-of-romania/35-foreign-direct-investment-in-romania/http://www.romania-central.com/economy-of-romania/the-economy-of-romania/32-macroeconomic-development-in-romania-1989-2006/322-sector-development-in-romania/3221-romanias-real-sector/http://www.romania-central.com/country-profile-romania/http://www.romania-central.com/economy-of-romania/the-economy-of-romania/35-fdi-location/http://www.romania-central.com/country-profile-romania/http://www.romania-central.com/economy-of-romania/the-economy-of-romania/35-foreign-direct-investment-in-romania/ -
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increase in the mandatory retirement age from 65 to 67 and measures to increase female
participation in the labour market. The modernization and integration of the eastern German
economy - where unemployment still exceeds 30 percent in some municipalities - continues to be
a costly long-term process, with annual transfers from west to east amounting to roughly USD 80
billion. While corporate restructuring and growing capital markets have set strong foundations to
help Germany meet the longer-term challenges of European economic integration and
globalization, Germany's export-oriented economy has proved a disadvantage in the context of
weak global demand.
So, if we compare, the two growth rates from the chart we see that Romanian GDP
growth rate is higher than Germanys but from what we presented before, the causes are
different. The Romanian GDPs growth rate was in a process of catching up with the rest of the
countries that were part of U.E. The growth rate was alimented by the FDI not because of the
Romanian business environment. Instead, Germanys growth rate of the GDP was influenced by
two major factors: the costs of reunification and its export based economy.
Unemployment Rate (%)
17
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Romania
Germany
1111.5
9.1
8. 3
7. 2
6. 35. 9
6.1
4.1
4.4
10.59. 9
9.8 9.8
10.5 10.6
11.7
7.1
9
7.8
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Previously, we observed that the 2000-2009 period was one of the most prolific in what
concerned the growth rate of GDP. But if we look deeper, what do we find? The number of
unemployed fell from 1.1 million in 1999 to 368,000 in 2007, the unemployment rate reaching
4%. During the same period, however, the number of employees increased by only 262,000,
which means that at least several hundred thousand unemployed were lost on the road, especially
in conditions where the number fell to 168,000 retired people, so we can say that the unemployed
were retired. The most likely destination for unemployed "no" was foreign countries. On the
other hand, economic growth for consecutive 9 years should have lead to a significant increase in
staff, which did not happen. Moreover, crude activity rate, e.g. the ratio of the working
population and total population, has declined continuously, reaching from 50% in 1992 to 43%
in 2000 and 42.2% in 2007. At this time, the number of unemployed has reached 625,000 and the
unemployment rate to 6.9%. If we judge things by considering what happened after 1999, the
unemployment rate is to reach a maximum in the first part of next year, then may begin to
decline or not, depending on how the economy will return .
In contrast to a number of other European countries and especially in contrast to the US,
Germany appears to be unable to make almost any progress in reforming labor market
institutions and the welfare state in order to reduce its stubbornly high unemployment rates. It
forms in this respect an unholy triple alliance of reform laggards with France and Italy.
Persistently high unemployment rates are just one side of the coin of an overall economic
performance which is far from satisfactory. The other side of the coin is the lackluster
performance with respect to growth rates, where Germany was in the course of the nineties not
only outperformed by the US, but again also by a number of other European countries. It should
therefore not be surprising that with respect to economics Germany, which used to be the
economic powerhouse in the EU, is increasingly called the sick man of Europe suggesting that
something is rotten in its institutional setting. Some thirty years ago German institutions along
with its low unemployment rates and social cohesion were the envy of the world. Its
unemployment rate was about one fifth of that in the US which was then about the same as it is
today. Since German labor market institutions have by and large been kept unchanged over the
last thirty years, only their interaction with changes in the economic environment is a plausible
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candidate for explaining rising unemployment. Why so? Firstly, German institutions might have
worsened over time relative to other countries or even in absolute terms, reflecting the negative
influence of special interest groups on political decision making in this country. The German
economy is by now infamous among international policy observers for its excessive level of
regulation, taxation and bureaucratization which not only distorts but also greatly reduces
incentives to work in general, but especially to take risks such as investing in skills, in new firms
or in venture capital. Secondly, the economic environment might have changed so that a
formerly appropriate German institutional setup fostering GDP and employment growth is no
longer conducive to achieving these goals. There is widespread evidence that the new economy
of the twenty-first century, which has globalization and great technological advancement as its
hallmarks, is characterized by greater variability and heterogeneity as well as more rapid change
so that more institutional flexibility is called for.
So, we see the trend in the chart, of decrease in both countries but we have reasons also to
worry about the future of this statistical data. In Germany, the problem resides in the lack of
structural adjustments, starting with the institutions in charge and in Romania; we are confronted
with the possibility in the near future of new waves of specialized people that will leave in search
for a better future.
Inflation Rate (consumer prices) (%)
19
0
5
10
15
20
25
30
35
40
45
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Romania
Germany
4445.7
34.5
22.5
15.3
9.6 9
6.84.8
7.8
0.8 2 1.3 1.3 1.1 1.6 2 1.7 2.3 2.7
-
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The economy has generally grown below potential in the 2000-2006. After 2006 the economy
experienced rapid and beyond potential growth which has generated inflationary pressures. The
first quarter of 2009 marked the entry in a recession caused by the global financial crisis. Annual
inflation rate was 6.8% in Romania in January 2009, fourfold higher than EU average, Romania
recording the third highest annual inflation rate among EU Member States. Imported inflation
can be explained by the evolution of the EUR/RON exchange rate. A depreciation of the local
currency will cause an increase in the price of imports which will also generate price inflation. In
the case of Romania, many domestic goods have their prices denominated in euro so the
exchange rate channel has a greater impact over the inflation compared to other economies.
The German Federal Government is expecting the average inflation rate for 2008 to be 2.3
pct, Financial Times Deutschland reported, citing an obtained draft of the annual economy
report. In 2007, consumer prices rose by 2.2 pct, according to figures from the Federal Statistics
Office. Recent media reports said that the government will also lower its GDP forecast for 2008
to 1.7 pct, down from 2.0 pct.
So, the chart shows that Romanias inflation rate is growing and the reasons where
presented before. Germany no doubt will have a decrease of the inflation rate in the nearest
future.
Exports (Billion US $)
20
49.4140.323327.7217.6313.711.511.28.423.54
1498
1354
1133
1016
893.3
696.9
608608578
610
0
200
400
600
800
1000
1200
1400
1600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Romania
Germany
-
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Romanian volume sales abroad increased from 10 billion in 2000 to over 35 billion last
year, but in November 2008 marked the first decline in exports. Romania's exports declined in
December 2008 with approximately 17% over the equivalent period of 2007 and the first decade
of January exports to non-EU states have suffered a compression more accentuated, with 46%,
according to estimates Exporters Association. In November 2008, Romanian exports of goods
decreased by 9% from the same months of 2007, up from 2.54 billion euros, while imports fell
17%, according to data published by the National Statistics Institute (NSI). From January to July,
Romania exported goods of 16.4 billion euros, 3.9 billion euros less than in the same period last
year.
Germanys export sector, which forms the backbone of the country's economy, wont return
to its former strength until 2014, warned an industry association.
Germanys export industries are on the road to improvement, but the recovery process will take
longer, BDI president Hans-Peter Keitel wrote in his introduction to the report. The export
industries had to battle through a tough setback in 2009.
At this rate, we wont get back to pre-crisis levels until 2014.
The figures were based on a large survey of German businesses across a wide range of sectors.
Before the global economic crisis struck in 2008, the growth in German exports was humming
along at eight percent a year, the report found. Germany has traditionally been the worlds
biggest exporter and one third of jobs here rely on exports.
But many economists believe China has either taken over, or is about to take over, Germany as
world export champion.
So, even both countries increase the exports, no one will get what desires most, Germany
the position of the larger worlds exporter and Romania the rate of growth from 2007.
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Imports (Billion US $)
Romania increasingly imports more and exports more or less. This is part of the "price" paid
by EU integration. With the entry into the EU common market, our country imports increased
significantly, compared with exports. Once high barrier duties, more and more foreign products
have flooded the Romanian market, as otherwise expected.
Germany represents the first trading partner of Romania. It is not just the second largest
exporter in the world but also the second largest importer after U.S.
The chart shows us that growth is the trend. But we face different problems because of the
different contexts. Romania imports more and more because is connected to a larger market, the
U.E. comparing to COMECON. Germany instead uses this in her own advantage. They have
annually a surplus and we face constantly the deficit. From this, we see, results the lack of
regulations.
22
76.1764.5446.4838.1528.4322.1716.714.411.99.6
612587
505 487.3
585
716.7
801
916.4
1075
1232
0
200
400
600
800
1000
1200
1400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Romania
Germany
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External Debt (Billion US $)
As this chart shows, both countries confront with a rising external debt. Romania has no
external debt in 1990, but now it has become one of the major debtors in Europe. Germany has
fought two world wars and the bills werent paid not even until now. Still Germany tries to
reduce the level of the external debt. Romania doesnt seem to care that it has a debt of over 8
times greater comparing with that from Ceaucescu era.
23
101.674.5442.7635.689 9.3 11.6 13.7 18.34 24.59
3626
3904
4489
5250
0
1000
2000
3000
4000
5000
6000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Romania
Germany
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Bibliography
1. Liviu-Stelian Begu, Statistica Internationala (Analize Comparative), Editura
Universitaria, Bucuresti, 2009;
2. http://en.wikipedia.org/wiki/External_debt
3. http://en.wikipedia.org/wiki/Government_spending
4. http://www.encyclo.co.uk/define/Equilibrium%20unemployment
5. http://www.indexmundi.com/g/g.aspx?c=gm&v=66
6. http://www.investopedia.com/terms/g/governmentpurchases.asp
7. http://www.oenb.at/dictionary/termini.jsp?EINTRAG_ID=2032
24
http://en.wikipedia.org/wiki/External_debthttp://en.wikipedia.org/wiki/Government_spendinghttp://www.encyclo.co.uk/define/Equilibrium%20unemploymenthttp://www.indexmundi.com/g/g.aspx?c=gm&v=66http://www.investopedia.com/terms/g/governmentpurchases.asphttp://www.oenb.at/dictionary/termini.jsp?EINTRAG_ID=2032http://en.wikipedia.org/wiki/External_debthttp://en.wikipedia.org/wiki/Government_spendinghttp://www.encyclo.co.uk/define/Equilibrium%20unemploymenthttp://www.indexmundi.com/g/g.aspx?c=gm&v=66http://www.investopedia.com/terms/g/governmentpurchases.asphttp://www.oenb.at/dictionary/termini.jsp?EINTRAG_ID=2032