REGIONAL COOPERATION AND ECONOMIC INTEGRATION

the fiscal position is likely to deteriorate: decelerating economic activity will affect revenue
collection.
In these new circumstances, the wide external imbalances are no longer acceptable. High
economic growth in recent years and even disinflation have come at the price of an ever
larger current account deficit because there is a tight relationship between the fast expansion
of domestic absorption, fuelled by rapidly growing personal incomes and credit, and the
widening of the external gap.
Also, the crisis will have an ambivalent impact on the magnitude of the current account
deficit. Therefore, the exports will decrease following the trend in external demand and
the imports will also decrease, as a consequence of the decline in investment activity and
exports.
Due to international financial crisis, the inward FDI rhythm will be decreasing on short term.
The likely decrease in the FDI flow will make financing more expensive and significantly
less available.
Till now the FDI flows to South and Eastern Europe have proved very resilient to the
global slowdown. To a certain extent, economic retrenchment in Western Europe has led
to a further shift in productive capacity to Eastern Europe. It is generally assumed that
FDI flows will hold up much better than other forms of capital flows. Returns in emerging
markets, including South and Eastern Europe, will continue to be more attractive than
those available in mature markets.
Romania continues to offer good prospects for “greenfield” investment, particularly in
the automotive and electronics sectors, which will be essential in assisting long-term
development as well as in preserving macroeconomic stability. But sectors with high levels
of indebtedness, including real estate developers and construction companies, are likely to
be worst-affected by the global financial crisis. Other sectors such as textiles, which are
already in decline and operate on low profit margins are vulnerable to the global liquidity
crisis.
CONCLUSIONS
FDI FLOWS IN SOUTH EASTERN EUROPE
Over the past four years, Romania has benefited from record FDI inflows, thanks to
macroeconomic stabilization, fast GDP growth, large-scale privatizations and the prospect
of EU membership. However, privatization-related FDI flows are slowing down since
2007, which have been an important source of capital inflows over the past decade.
Furthermore, successive wage negotiations have driven up unit labor cost, affecting
Romania’s international competitiveness, especially in light industry, in favor of low-cost
Asian countries.
Romania’s patterns of FDI and foreign trade indicate the transition from a competitive
advantage in the lower-end of the value chain (in particular textiles and leather) towards
services and higher value-added manufacturing sub-sectors, following the example of many
of the Central and Eastern European countries. But this transition is still at an early stage
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