Growth is becoming more volatile and key social policy challenges remain

The democratic transition in Romania comprised difficult economic and social reforms including the restructuring of entire industries. Since the 1990s, Romania has seen periods of fast growth being considered as one of Europe’s few tiger economies. However, this growth track has been volatile with several setbacks due to inconsistent reforms and recessions of the global economy. Overall, GDP per capita rose from 30 per cent of EU average in 1995 to 74 per cent in 2021, with particularly fast growth since 2015, not least due to a burgeoning IT sector and growth in electronics and automotive manufacturing. Recently, the country moved from middle to high-income status.

The Covid-19 pandemic pushed the Romanian economy into a recession in 2020 with a 4 per cent decline of GDP (EU27: -5.6 per cent). Recovery was strong at 5.8 per cent in 2021 and 4.7 per cent in 2022, due to strong private consumption and investment. Romania posted high inflation rate at 4.1 per cent in 2021 and 12.0 per cent in 2022, which could hamper further growth.

The Romanian labour market benefited from the strong economic growth of the past years before the outbreak of the Covid-19 pandemic. The employment rate is approaching the EU average (66.8 per cent compared with EU27 74.5 per cent in 2022) and the unemployment rate of 5.6 per cent in 2022 is not substantially higher than its pre-pandemic level of 4.9 per cent in 2019. However, youth unemployment is higher than 20 per cent and reached 22.8 per cent in 2022. In addition, inactivity remains one of the highest in the EU especially for women (female inactivity rate of 41% vs. EU average of 32 per cent, 2020). The gender employment gap stands at over 19 per cent, one of the highest in the EU.

The short-term impact of the pandemic on labour markets was considerable. However, the loss in working hours did not translate into large reductions of employment in 2020. Firms compensated most of the working hours lost through reducing working time while retaining workers. Government measures such as wage subsidies and other incentives to preserve employment amounting to 5 per cent of GDP helped to mitigate the labour market impact. Social dialogue did not play the same strong role in designing the response package as in other EU countries. 

Romania is less dependent on Russian natural gas than other countries in the region. Despite weak international demand for Romanian goods and services and supply chain disruptions, exports continued growing. High energy costs, rising interest rates and weakened growth in Romania's key trading partners in Europe will continue to compound existing challenges related to high inflation in 2023. 

A key mid to long term challenge for social policies is the inequality which is among the highest in the EU (Gini coefficient was 34.3 per cent compared with 30.1 per cent of EU27 in 2021), while the redistributive effect of taxes and social benefits is below the EU average. Romania also has a still large share of people at risk of poverty and social exclusion (34.5 per cent versus EU27: 21.7 per cent in 2021), which is concentrated in rural areas. The persistent negative population growth and the outward migration of labour will also pose significant labour shortages.

The cooperation between the ILO and Romania

Romania was a founder member of the ILO in 1919.

Between 1993 and 2008, the ILO was present in the country through an own office. The ILO supported labour market institutions and reforms of labour legislation. Some of the key achievements were the revision of the Labour Code, the adoption of new legislation on collective agreements and tripartite social dialogue, the modernization of labour inspection services, and new active labour market policies.

After Romania’s accession to the EU in 2007, the ILO provided technical comments on the 2010-2011 labour and social dialogue legislation and supported the establishment of the Office for Mediation of Collective Labour Disputes. 

Romania funded a technical project on social security implemented by the ILO in Moldova.

Text last updated  May 2023