RAIFFEISEN BANK S.A.

 | 

IONUT DUMITRU

 | 

NICOLAE COVRIG

  |  06.11.2013

Macroeconomic overview Romania

Economic activity remained on upward trend in the first half of the year, but recovery pace remained quite modest. Current official estimates show real GDP advanced by 0.5% qoq in Q2 after it had increased by 0.4% qoq in in Q1.

Page 1/3
 1 2 3   
RAIFFEISEN BANK S.A.

IONUT DUMITRU

IONUT DUMITRU

HEAD OF MACROECONOMIC RESEARCH at RAIFFEISEN BANK S.A.


NICOLAE COVRIG

NICOLAE COVRIG

RAIFFEISEN BANK S.A.

Our in-house estimates suggest real GDP excluding agriculture might have been flat in Q2 after it had grew by 0.4% qoq in Q1. In our view, real GDP excluding agriculture is a better aggregate to track underlying trend in economic activity in case of Romania as it is less impacted by volatile weather conditions and resulting volatile dynamics of agricultural output.

 

But the pace of economic recovery seems to have decelerated in the first half of 2013 (especially in Q2). Flat dynamics of real GDP excluding agriculture in Q2 is the worst performance since the end of 2011.

 

Industry (on the supply side) and net exports (on the demand side) were key drivers of GDP growth in the first half of the year. Industry remained a key driver of GDP growth in Q2 on the supply side, growing for the fifth quarter in a row. Positive dynamics seems to have been supported by export driven sectors (especially automotive industry). On the demand side, the main driver of growth in Q2 was net exports whose positive contribution was fuelled by the increase in exports, but also by the decrease in imports (a similar pattern was also recorded in Q1). We recall that especially exports of the automotive industry (passenger cars, parts and accessories for transport means) and exports of services (+32.4% yoy in Jan-Jun in euro equivalent) had an outstanding performance both in Q1 and Q2.

 

Domestic demand remained weak in the first half of the year. On the one hand, given the poor increase in public revenues and the increase in spending with wages of public servants, the government had to keep a strong control over public expenditure (both current and investment expenditure) in order to keep the public budget deficit at a low level. There was a substantial cut especially in case of public investment expenditures (-14.4% yoy in Jan-Jul for investment spending from own funds and from the European Funds). On the other hand, individuals and companies remained concerned on economic prospects and showed prudence in spending and investment. Dynamics of private consumption was almost flat in the first half of the year while total investments (public and private) decreased marginally. The increase in public wages by around 17% over the past year had almost no visible impact on consumption spending. Individuals focused to reduce their debt burden of loans taken before inception of crisis. 

 

Data show also that labor market conditions might have deteriorated starting the end of 2012. The two measures used to track unemployment dynamics – the ILO unemployment rate derived from a survey on households and the recorded unemployment rate derived from the number of peoples officially recorded as being unemployed with the ANOFM – saw an increase starting Q4 2012. While having in mind the drawbacks of these indicators, we believe their coincident increase over the last three quarters could be a sign that labor market conditions might have deteriorated recently. Other indicators point also to more difficult conditions in the labor market: the number of employees in large companies (at least four employees, state or private majority owned) decreased marginally in Q2, and annual growth rate of nominal gross earnings in such companies decreased visibly in the first half of the year.

We believe the sharp fall in imports in H1 2013 was also a facet of fragile domestic demand. The plunge in imports of fuels (oil, natural gas) explains a lot of fall in overall imports. While the good weather conditions (mild winter and summer) are good reasons for the fall in imports of energy, we believe there are also structural factors behind fall in energy imports (the closure of some intensive energy production capacities in metallurgy and chemical industry).

 

Page 1/3
 1 2 3   

COMMENT ON THIS ARTICLE:




Load new captcha.