The net real wage was higher by 42.7% in 2017 as compared to 2008, while the number of employees is also higher by 2.4% in 2017 compared to 2008. As social contributions and other taxes were reduced, the increase in real wages was only partially mirrored by the increase in compensation of employees. When compared against EU average, labor productivity raised faster than compensation of employees over the entire period, therefore the unit labor cost, relative to our main trade partners (EU), decreased by 7.7 percentage points (Figure 3). This explains the positive dynamics of exports. Public debt, as a percentage of GDP, is three times higher now than it was in 2008 (35% in 2017 compared to 12% in 2008), but this is a misleading figure for a number of reasons. First, in 2008 and few years before that, Romania did not access international markets, by its own choice, as it financed the deficit from one-off revenues. Second, international reserves were 10 billion euro higher by the end of 2017 compared to the end of 2007 (Figure 4). International reserves include a foreign exchange buffer which has been built since 2011, reached an average of 4 months of financing in 2013 and fluctuated around this level since then. This buffer is the first line of defense against short-term external shocks which may affect emerging markets, and our opinion is that it is a very good instrument which needs to be preserved and consolidated.
The recent economic deceleration from 6.9% in 2017 to 4.2% y-o-y in first half 2018 is a double edged sword. On the one hand, it represents a slowdown compared to last year. On the other hand, it brings growth towards its potential, therefore reducing the output gap and making growth more sustainable. But, as former US President Harry Truman said, “All my economists say on the one hand…on the other hand…Give me a one-handed economist!”. The current account deficit, although much lower than prior to the crisis and below its long time trend of 4% of GDP, remains a concern because our peers are recording current account surpluses in these years (Figure 15). However, it remains fully financed from autonomous flows (FDI and European funds) (Figure 16). Let me make two remarks here. The FDI flows, although lower than prior to the crisis, are much more stable, as they only comprise of equity and reinvested profits (especially after mid-2014), while short-term intra-company loans have practically vanished. As for the European funds, in the last 10 years, more than 40 billion euros entered the country, representing a factor of the increase in the monetary aggregates. This brings me to the issue of inflation. Price stability is our main task and I think we did a good job, given the circumstances. Last year the inflation target was met.