All the signals are that Romania's economy will hit the ground running when it joins the EU in just 10 weeks time.

In fact, indicators show that Romania will be among the leading economic performers within the EU after joining at the start of 2007.

And, as economic growth and the jobs and salary growth it leads to is the single most important spur of property price growth, the key question for property investors, is: can Romania's booming growth be maintained long term?

In short, the answer is that it looks very likely that the Romanian success story will actually strengthen following EU accession.

Extraordinary growth overshadowed

What some leading economists are predicting is little short of extraordinary for a country whose economic and restructuring progress has largely been ignored following the news that it, along with Bulgaria, had been accepted by the EU as members from 2007.

The reason no one has concentrated on its economic success story is down to the current hot debate in most of the bigger Western members of the EU -migration of large numbers of workers from the new member countries.

While this migration has had a positive effect on the economies of countries that have lifted all barriers - the UK and Eire in particular - by lowering salary inflation, popular sentiment has forced restrictions on Romanian and Bulgarian workers following accession.

But the fact is that, unlike many other countries - most notably Poland - where there are temporary shortages of certain skills in the labour market caused by migration, this is unlikely to happen in Romania, and not because of the restrictions imposed by fellow EU members.

Romanians who are left will stay put

It is because most Romanians who had the means and the desire have already migrated, mainly to Spain and Italy, where they find it easiest to adapt to the lifestyle and the languages.

But, away from the headlines about restrictions on migrants, a highly significant fact and prediction is worth bearing in mind, especially if you're a property investor.

60% of the EU average GDP per head within ten years!

Right now Romania's per head GDP is around one third of the EU-15 (the older, richer nations).

And yet economist and former Romanian Finance Minister Daniel Daianu predicts that 'If the growth differential (Romania's GDP growth compared to those the EU average) stays around 4% in Romania's favor, in conjunction with a possible 2% average annual exchange rate appreciation of the domestic currency (until adoption of the single currency), income per head in Romania could reach around 60% of the EU average in a decade.'

60% of the EU average within ten years!

This is a measure of both Romania's low starting base as well as its enormous capacity to grow.

The World Bank listed some of Romania's remarkable economic achievements over the past few years in a recent report -

"EU accession aspirations have enhanced macroeconomic stability and spurred commitment to reforms in recent years.

"Until 2000, Romania was one of the poorest performing economies of Central and Eastern Europe (CEE). The turnaround in 2000 was preceded by a protracted and precipitous decline in GDP, a peaking of the poverty rate to 36 per cent, and inflation of 54 per cent per year.

"By contrast, during the last five years the economy grew robustly at 4 to 5 per cent, led primarily by investment and exports, and occasionally by consumption in response to improved confidence in banks and macroeconomic consolidation."

Inflation declined from above 40 per cent in 2000 to 8.6 per cent in 2005, the lowest level since the start of the transition.

Strength in Reserve

"Good economic performance contributed to a record level of official reserves, which have increased several fold since 2000, exceeding €18 billion recently equivalent to about 6 months of prospective imports."

Elsewhere, the report states: "Surveys constantly show that more than 80 per cent of the Romanian population desires rapid integration into the EU structures.

People power - not party politics

"The accession process and the implementation of the related commitments to reach EU standards, some of which will extend significantly after the accessions date, will therefore remain the strongest anchor for structural reforms, irrespective of the party configuration of the governments which come to power in the future."

This is significant stuff indeed.

What it means is that not only has the Romanian economy turned around dramatically since 2000, but - perhaps even more importantly - the reforms that made this turnaround possible are not only likely to continue following accession, but to actually accelerate!

And beyond even that. For the property investor looking for signs of stability longer term, it is important to examine the political context of any country.

And, in this regard, what the World Bank is saying very clearly is that Romania is one of the most enthusiastic EU members. The appetite for integration with the EU among the general population is so strong that the reforms needed to comply with EU demands are highly likely to continue regardless of whatever party is in power.

Key ingredient for property investors

That is the kind of economic driving force we have seen in Poland, where growth has continued apace despite political uncertainty and also in the Czech Republic.

When we consider what has happened in Hungary - a refusal to reform along EU lines and the economic and political crisis that has since ensued - the importance of this apolitical desire to reform and comply with the EU in Romania is given extra weight.

And it is an extremely important indicator for property investors.

Let's look a little more closely at some of the economic data, because what they show is just how low a level Romania's sustainable growth began from - which is an indicator, of course, of potential - not just for the economy, but, obviously, for the knock on effect on the property market.

Economy on a roll

If anyone wants an example of an economy on a roll, Romania is it. The economy, in layman's terms, is booming.

GDP growth was 6.9% in Q1 of this year, and it picked up to a blistering 7.8% in Q2.

Inflation continues to fall. From December to December it will fall close to the government's target of 5 per cent - from 8.6% in 2005.

Industrial production has experienced a staggering recovery after a series of setbacks. A sharp appreciation of the Romanian lei caused by big inflows of FDI, and a rapid acceleration in energy prices have put many industries under pressure in the last couple of years.

As a result, the growth rate of industrial output actually slowed in 2005. This, along with a bad harvest in 2005, slowed the rise in GDP to 4.5% - down dramatically from the peak of 8.3% in 2004.

Economic resilience

But, again, we have seen the resilience of the Romanian economy.

Daniel Daianu again: "The speed with which industry has recovered suggests that efficiency reserves are still quite high in the Romanian economy and that shocks can be dealt with adequately, provided management is good and the transfer of new technologies is satisfactory.

"Budget revenues have been bulging and may jump above 32% of GDP this year (from around 30% last year). This trend seems to vindicate those who supported the introduction of the 16% flat tax in 2005."

These high budget revenues are helping to pay for investment in education and very badly needed infrastructure.

Ultra-low unemployment

Unemployment is just above 5 per cent.

Exports are growing rapidly - by more than 18 per cent in the first quarter of 2006.

So, all in all, the economy has continued its dramatic turnaround since 2000 and certainly defied those who forecast considerably lower growth.

On the debit side, like, many other CEE countries, Romania has had a current account deficit for a number of years. This may hit around 10 per cent of GDP in 2006.

FDI and budget deficits

Coping with such a large deficit has not been a problem so far because of large levels of FDI coming into the country and so long as Romania is able to continue to attract FDI at a sufficient level, there is no reason why this deficit cannot be gradually brought down, as indeed it must be to meet EU demands.

Some economists have sounded warning bells about levels of debt this large however, and there is no doubt that ballooning credit within Romania - which is a good measure of growth - will have to slow eventually.

But it still has a long way to go before then.

Booming credit growth = increased money supply

At the start of September 2006, credit in the private sector had grown by more than 100% over the previous 12 months.

Even so, the credit to GDP ratio is low in Romania, which means there is still huge room for further growth.

"Commercial banks would like to capitalise on the assumed bright prospects for an economy that will become part of the EU in 2007," says Daniel Daianu.

FDI, as we said above, is the key to keeping budget deficits under control and shrinking them. So long as Romania can maintain and increase its share it is likely to continue to show levels of sustainable growth.

And, in fact, as we have shown previously, FDI tends to increase not in the run up or even around the actual time of accession, it increases substantially in the years following EU membership.

Whatever the reason, previous experience - with Ireland, the UK, Portugal and Spain - shows that FDI after six to eight years of EU membership was more than double than during the first two years following membership - and that was around three times higher than four to six years before.

This is a key economic pointer for property investors.

It indicates that, while we have seen high levels of growth in Romania, both in the economy as a whole and within the property sector, we are going to see a huge amount more over the next ten years or so as FDI accelerates, wages grow, the demand for credit (and its supply) expands. And, of course, demand for housing grows.

This virtuous circle is likely to lead to very high capital growth indeed in the property market.

Click here to read Part II: The development of the mortgage market