In Romania ILO unemployment rate inches up m/m to 3.9%

The ILO unemployment rate increased slightly to 3.9% in July from 3.8% in June (revised from 4.0%), yet it remained lower than 4.1% in July 2018, according to figures of the statistical office, the INSSE. The rise was most probably fuelled by some planned layoffs in manufacturing, as previous employment surveys indicated. The number of unemployed also increased by 3.2% m/m to about 352,000 in the month. In annual terms, the number of jobless persons kept on falling, remaining on a persistent downwards trend for about three years. However, the decline continued to ease to 6.4% y/y in July from 10.0% y/y in June, partly releasing tension in the domestic labour market. Besides, the increase in number of employees in the economy is also moderating, reflecting a hiring mood deterioration.

In spite of the slight rise, the overall ILO-based unemployment rate remained low in July and labor market tight. The youth jobless rate increased to 16.2% in Q2 from 15.4% in Q1 2019. The substantial discrepancy is mainly generated by the weak coordination between labor market requirements and the education system, reflecting a strong need of structural reform. However, structural labor and education reforms are still not among the government’s priorities. In addition, the labor force is not satisfying local employers, which keep complaining about talent shortage and lack of skilled workers. That is why imported labor is gaining field in the past years in Romania.

In short, the labor market is still tight, but tension seems to soften, as industrial activity deterioration is triggering staff cuts. Demand for skilled employees is high, keeping upward pressure on wages. Yet, we think that would very probably ease in H2 2019 due to high labour costs and economic slowdown. Industry signals it may keep on cutting staff because there are no signs of recovery in the short term. In addition, enthusiasm in construction started to fade, as we expected. Consumption seems to stay robust so retail might keep on hiring, but very probably less than in 2018. A moderate upbeat consumer sentiment might persist by the end of 2019 in spite of the bleaker economic outlook, as election is scheduled in November.

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