Romania, Q2 2007 GDP

Romania's economic growth unexpectedly slowed in the second quarter as a prolonged drought damaged agricultural output and the trade deficit widened. Gross domestic product grew an annual 5.6 percent, from 6 percent in the first quarter, according to the National Statistics Institute in a preliminary release out today.

The Romanian government had already warned that record temperatures and low rainfall this year were damaging farm production and would slow economic growth to an annual 7 percent at the end of this year. The economy grew at an annual 7.7 percent in 2006, its eighth consecutive year of growth after four years of recession.

Damage to agriculture by widespread flooding in Romania in 2005 was largely responsible for slowing economic growth that year to 4.1 percent.

The trade deficit has widened this year. The deficit was running at 1.76 billion euros in June, up from 1.2 billion euros a year earlier as imports increased 22 percent and exports rose 9.2 percent.

Gains in the leu have made imports cheaper and made exports more expensive abroad. The leu has strengthened 15 percent against the euro and 22 percent against the dollar in the past year, making it the world's sixth best-performing currency.

The government is also planning to increase spending, widening its budget deficit to 2.7 percent of GDP in 2007 from 1.7 percent of GDP in 2006. In the first half of the year, limited spending growth left the fiscal deficit at 0.19 percent of GDP.