The ILO unemployment rate decreased slightly to 3.9% (sa) in January from 4.0% a month before (revised from 3.8%), according to figures of the state’s statistical office, INSSE. The drop was most probably fuelled by some better hiring mood in retail, on the back of an unexpected consumption rebound at end-2018, as previous surveys of the INSSE indicated. Besides, domestic labour market is still tight and employers are probably more prudent in making staff changes. Nonetheless, we expect unemployment to rise in the following months, as local employers (especially from the SME segment) have warned that the new minimum wage growth implemented as of January 2019 would force them to cut staff. On top of that, economic activity is estimated to slowdown this year, affecting hiring mood.
The number of jobless persons decreased by 1.3% m/m and by 12.1% y/y to about 354,000 in January, the lowest level on record. Adults held the largest share in total number of unemployed, but the youth jobless rate was still the highest. The unemployment rate among adults was 3.0% in January, while the most recent figures regarding youth jobless rate indicate a 15.4% level in November 2018. That confirms a major labour market imbalance and strong need of structural reform
Overall, the unemployment rate in Romania continued falling at the beginning of 2019. However, the consumption rebound at end-2018 and January 2019 that boosted hiring mood in retail is unlikely to continue, in our view. Even though employers in services and retail remained optimistic on staff developments in Q1, we think that the expected deterioration in construction would probably offset the positive influence in the labour market. At the same time, manufacturing employers are unlikely to make significant personnel cuts even if labour costs are high, because hiring is difficult in case of need. Yet, Romanian companies started to bring workers from abroad, more willing to accept low wages, which might trigger domestic unemployment growth in the future.