Romania monthly economic review - October 2008
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30 Septembrie 2008 |
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ERNST & YOUNG S.R.L. |
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Latest developments
Cabinet approves draft central budget for 2009
The government approved the draft central budget for next year based on GDP growth projections of 6% and a deficit target of 2.2% of GDP. The general budget deficit is projected at 2% of GDP next year. We recall that the central government budget includes the vast majority of tax revenues but part of them are redistributed to local governments that run separate budgets. In addition, the social security budget and the budgets of other state entities (e.g. public motorway company) are added as part of the general government budget. The Prime Minister, Calin Popescu-Tariceanu, stressed that the budget is designed to address the future economic challenges as it stipulates larger share of investment spending at the expense of current spending. The payroll in the budgetary sector is estimated to shrink to 5.9% of GDP from 6.3% this year while the capital spending would reach 6% of GDP from 5.6% this year.
Budget deficit of 1.08% of GDP, after 8 months
General consolidated budget ended the first 8 months of this year in a deficit of 1.08 of the GDP, the negative balance being RON 5.137 bn, according to data made public by the Ministry of Economy and Finance (MEF). After the first 7 months, the consolidated deficit stood at 0.64% of the GDP. Budget revenues stood at RON 107.43 bn or 22.6% of the GDP over January-August while expenses at RON 112.56 bn or 23.7% of the GDP. The most important cashing resulted from insurance contributions - RON 31.342 bn (6.6% of the GDP), VAT – RON 27.82 bn (4.8% of the GDP).The most important expenses were allotted for social assistance -RON 33.62 bn (7.1% of the GDP), staff – RON 22.35 bn (4.75 of the GDP) and goods and services – RON 20 bn (4.2% of the GDP).The budget deficit target for 2008 was set at 2.7% of the GDP, through the draft budget, with the deficit level being afterwards cut to 2.3% of the GDP through budget rectification. The International Monetary Fund (IMF) recommended Romania a budget deficit of 1.75% of the GDP for this year. The GDP in 2008 is estimated at RON 440 bn.
Deficit in balance of payments worth more than EUR 10 bn
Current account of balance of payments for Romania recorded a deficit worth EUR 10.006 bn January through August this year, that represents a 1.6% growth when compared to the same interval in 2007, the Romanian National Bank (BNR) announced. The decisive influence of the current account balance was given by the deficit in the trade balance, which stood at EUR 11.714 bn, which is an increase by 8.1% as against the January-August interval in 2007. The dynamics of exports outrun by 3.7% the dynamics of exports in the first 8 months of the year. The current account deficit in the January-August interval was covered 65% with FDI, which registered EUR 6.50 bn, out of which participations to the capital and reinvested profit represented 53.3%, with the intra-group credits standing at 46.7%. The foreign debt on a medium and long term recorded on 31 August 2008, the level of EUR 47.461 bn, which is a 23.3% growth as against the level on 31 December 2007. The foreign public debt and publicly guaranteed, hit a balance standing at EUR 10.635 bn on 31 August 2008 and represented 22.4% of the foreign debt ion a medium and long term (as against 26.5% on 31 December 2007). The publicly nonguaranteed foreign debt stood at EUR 30.646 bn on 31 August 2008, that is an increase by 22.3% against that on December 31, 2007. The foreign debt service rate on a medium and long term stood at 24.3% over January-August, compared with 21.8% in 2007. The coverage rate stood at 5.6 months of imports of goods and services on 31 August 2008, as against 6 months on 31 December 2007.
Industrial production up 4.9% in 8 months
The industrial production increased with 2.9% during the first 8 months of the year, compared to the similar period of the previous one, and the respective increase was achieved due to the processing industries (that reached an increase of 5.3%), electricity and thermal energy, water and gas production (+7.2%) according to preliminary data announced by the National Institute of Statistics (INS). During the mentioned period, the extractive industry decreased by 0.7%. Analyzing the major industrial categories, there are registered increases in the tangible assets industry (+10.6%), everyday goods and services (+8.4%), intermediary goods (+2.1%) and the electricity industry (+1.5%). On the other hand, the supplies of primary energy sources and the electricity sources increased by 0.5% and respectively 0.8% throughout January-August, compared to the previous 8 months of the last year. The top primary energy sources totalized 27.41 mn tonnes of oil equivalent. The total turnover for retail, except for car and motorcycle sales, increased with 16.6% during the first 8 months of this year, compared to the similar period of the previous one, according to INS. The increase achieved during the initial 8 months of the year is caused both by non-food products sales that increased with 18.9% as well as food products, beverages and tobacco products sales that increased by 14%.
Annual inflation decreased to 7.3% in September
The annual inflation (September 2007 – September 2008) decreased in September 2008 to 7.3% as against 8.02% in August, based on the data released by the National Institute of Statistics (INS). Compared with the previous year, consumer prices advanced by 0.4% in September. Compared with September 2007, the food products prices cost went up with 7.08%, service fees advanced by 7.75%, and non – food products were by 6.6% more expensive. Compared to August 2008, in September 2008, the prices of food products advanced by 0.33%, those of non – food, by 0.19%, whereas the service fees advanced by 1.05%. According to analysts, the advance of consumer prices in September, which exceeds the expectations, was entailed by the depreciation of the national currency. “There is a strong growth in case of services because of the exchange rate depreciation. We need to maintain the exchange rate below RON 4/ EUR. Based on the data published on Friday by INS, the trade deficit has advanced in the first 8 months of the year, compared to the corresponding amount of time in 2007, by 9.35%, and it amounted to EUR 14.58 bn. During this time, imports continued to outperform exports. Thus, exports advanced, over January–August, by 18.3%, to EUR 22.63 bn, and imports advanced by 14.6%, to EUR 37.2 bn. FOB exports, made during the first 8 months of 2008, amounted to RON 82.447 bn (EUR 22.636 bn) and CIF imports amounted to RON 135.570 bn (EUR 37.215 bn).
Economic indicators in industry to deteriorate
A deterioration of the perspective of the economic indicators in industry and constructions is possible in the coming months, the experts of the Romanian National Bank (BNR) estimate in a survey. Although in October the evolution was still positive, “on a much longer horizon, there are signs of worsening,” the survey shows. Thus, according to BNR analysis, the volume of production has maintained the upward trend in the 2 economic sectors which were analyzed, the rate acceleration showing a circumstantial balance of +33%. This estimate could prove however too optimistic, in the conditions in which recent declarations show the beginning already in October of a period of adjustments of production in important industrial sectors, on the background of the tempered demand both internally and internationally. In the constructions sector, the seasonal decrease of the growth rate of the portfolio of orders is expected. The main factors which can act as a brake on the good evolution of the production process in industry and constructions remain the insufficient demand (mentioned by 25% of the respondents), the evolution of the exchange rate and the difficulties to cash the equivalent of the sold production. Moderate inflationary pressures are anticipated in constructions, most of the answers pointing to price stability.
S&P concentrated unfairly on Romania lowering the country's ratings
Standard&Poors (S&P) concentrated unfairly on Romania through the decision to lower the rating, under the conditions where the deficit of current account started to lower as share in the GDP similarly to the speed of credit growth, the Counselor of the National Bank of Romania (BNR) Governor Lucian Croitorul said. The current account deficit started to lower (as share in the GDP). I think that, in the case of S&P, it was about the tendency to negative arguments. It is true that the international climate has worsened, but I think they concentrated unfairly on Romania, Croitoru explained. The BNR Governor Counselor underlined the fact that the deficit of current account was at a high level last year as well and during the last months, the authorities took measures to lower the economic imbalance by referring to the BNR. Over the first 8 months of this year, the current account deficit of Romania grew insignificantly, by 1.55% up to EUR 10.006 bn, from EUR 9.853 bn over the same interval of 2007, according to the data published by the BNR. Over the first semester of the year, Romania’s economy grew by 8.8% the GDP reaching EUR 53.3 bn. The S&P analyst, Marko Mrsnik argued, in the announcement of the rating agency, that the decision-makers attacked the most important economic issues, in the context where the attention changed towards general elections to come, which increased trouble and lack of cooperation in the political environment. Croitoru mentioned as main consequence of Romania lowered rating, the increase in foreign financing, but he does not consider that this will reflect in a slowing down of economic growth of Romania for 2009. The decision could affect negatively the volume of foreign direct investment in Romania, the BNR official concluded.
Moody’s sees no reasons for imminent rating action
International rating agency Moody’s maintains a stable outlook on the country’s investment-grade sovereign rating (Baa3/stable), estimating the current level as “very well positioned,” according to the agency’s senior economist Kenneth Orchard. The coming years will be challenging for the country’s economy, but the agency foresees no severe crisis and the long term prospects remain very good. The fiscal policy is a concern and the new government will have to tackle the shrinking budget revenues, he added though. Separately, the rating agency Fitch estimates that Romania’s economic growth would decelerate under the circumstances of shrinking lending and it anticipates rising general macroeconomic risks but mentions no imminent rating action. Fitch maintains a one-notch differential above Moody’s and two-notch differential above S&P (BB+/negative) on the country’s sovereign rating (BBB/negative). The main macroeconomic risks are generated by the external financing and by the impact of the exchange rate volatility on the banking system due to the large share of foreign currency in the stock of loans. A hard landing episode might be triggered by scarce external financing in case the foreign investors lose confidence in the country’s fundamentals or in case their risk aversion further increases.
Romania’s economic growth projected at 9.1%
Romania will achieve an economic growth of 9.1% this year and 6% in 2009, according to the National Prognosis Commission (CNP). According to their latest report, services will lead the growth with an input of 3.4%, while agriculture will grow 15.2% after last year’s regress and generate 1% of growth. The nominal GDP will reach RON 505 bn and slow down the growth rate to 6.3% in 2010 and 6% in 2012 and 2013. At the end of this year, the trade deficit will reach EUR 23.85 bn, equal to 17.3% of the GDP. The forecast for the near future indicates that the trade deficit will deepen, but its weight in the GDP will gradually decrease to 10% in 2013. Exports will reach EUR 34.85 bn at the end of this year, up by 18% year-onyear, while imports have been projected at EUR 58.7 bn, up by 14.4% year-onyear. The current account deficit will reach EUR 18.13 bn, down by EUR 540 mn from the previous forecast. The foreign deficit will reach 7.5% of the GDP at the end of 2013, down from an estimated 13.2% this year. Eight months through this year, the current account deficit stands at EUR 10.006 bn, compared to EUR 9.853 bn in the corresponding period of 2007. The inflation rate for this year has been estimated at 6%, up from the previous estimate of 5.8%. However, the National Bank has released a different forecast, of 6.6%, up by 0.6% from their previous estimate. The forecast for the next few years points to 4.5% in 2009 and a historical low of 2.32% in 2013.
