Potential GDP in Romania

Abstract

The economic and financial crisis has hit Romania since the second half of 2008, causing a significant drop in production and household income. The consequences of this crisis include rising unemployment and falling household consumption expenditure. Thus, in June 2008, the unemployment rate was 3.7% and in March 2010 it reached 8.4% level. The final consumption expenditure of households fell by 9.2% in 2009 and by 3.3% in 2010. The slowly beginning recovery in 2011 revealed that unemployment in the Romanian economy has a significant structural component. As a result, the potential GDP remains low. The paper presents a method for estimating the potential GDP to determine the gap between real GDP affected by cyclical factors and the productive potential of the economy, used in any circumstances.