Romania Monthly Economic Review - September 2009

13 Octombrie 2009

ERNST & YOUNG S.R.L.

In this issue:

• CNP estimates economic shrinkage of 7.7% in 2009
• Prognosis : 2009 inflation at 4.3%
• Budget deficit in first eight months 4.5% of GDP
• FOB-CIF trade deficit of EUR 4.86 bn in seven months
• Romania current account narrows 74% y/y to EUR 2.7 bn in January to July, predicted to drop to 4.6% of GDP in 2009
• FDI down to one quarter of July 2008 level
• Gross external debt rises to EUR 59.76bn at end of July
• Public debt surges 12% m/m to EUR 33 bn in July
• Romania posts slowest fall of industrial production in the EU
• Unemployment rate to climb to 7.6% in 2009
• Average wage gain to reach RON 1,922 in 2010
• IMF Board disburses second tranche under SBA
• Romanian economy likely to recover in Q4 2009
• NBR cuts key interest rate to 8% per year
• Romanian banks, most profitable in EU

 

Latest developments

CNP estimates economic shrinkage of 7.7% in 2009

The National Commission for Economic Projection (CNP) forecasts for the autumn preliminary estimate an economic shrinkage for Romania equal to 7.7% in 2009, more severe than the previous estimate of 4%, but below the economic contraction accounting for 8-8.5%, which authorities took into account in the agreement with the International Monetary Fund (IMF). For 2010, the National Commission for Economic Projection forecasts an 0.5% economic growth, 2.4% in 2011, 3.7% in 2012. The CNP anticipates an economic growth worth 4.4% in 2013 and 5.2% in 2014. According to the autumn preliminary estimate, in accordance with the GDP components, the industrial gross domestic product would register a diminution of 5.8% in 2009 and 1.3% in 2010 and it is expected to grow in 2011. The gross added value in agriculture will report a diminution of 7.8% in 2009 and a growth of 1.6% in 2010, in constructions - diminution of 13.9% in 2009 and a growth of 3.6% in 2010, in services - diminution of 5.9% in 2009 and a 0.6% growth in 2010. The final consumption of households will decrease 12.7% in 2009, but will go up 2% in 2010 and in public administration the reduction is of 12% in 2009 and 2% in 2010. Gross fixed capital formation will go down by 11% in 2009 and is expected to increase 2% in 2010.

The CNP estimates the peak of the recession in 2009. Thus, third quarter GDP will be down 8.5% compared with the same period of 2008, and down 1% compared with this year's second quarter. In the second quarter, Romania's GDP shrank by a seasonally adjusted 1.1% compared with the previous quarter. In unadjusted data, GDP fell 8.7% on the year in Q2, according to the National Statistics institute's data. In the last three months of 2009, the economy will contract by 7% compared with the similar period a year earlier, and by 0.8% compared with the previous quarter, according to the preliminary autumn prognosis. The first quarter-to-quarter growth is seen for 2010's second quarter, when the GDP is seen to go up 1% from the January-March period, though it will still be down compared with the second quarter of 2009.

Prognosis: 2009 inflation at 4.3%

Romania's inflation is estimated to be 4.3% at the end of 2009, slightly below the central bank's 4.5% upper limit target, and is seen as falling to 3.5% next year, according to the CNP's preliminary autumn forecast. The committee estimates the average annual inflation at 5.5% this year, slightly below the 5.8% it predicted in its spring prognosis. Romanian consumer price index fell in August by 0.19% m/m, compared with 0.07% in July, while the annual inflation rate fell for the sixth month in a row, from 5.06% to 4.96%, according to the National Statistics Institute.

Romania's central bank set up a 3.5% inflation target for 2009, with one percentage point variation band, and estimates the annual inflation rate will be at 4.3% in December. The International Monetary Fund estimates that this year's inflation will be at 4.3%, below the agreed target established in the EUR 13 bn stand-by agreement, back in March 2009.

Budget deficit in first eight months 4.5% of GDP

The General Consolidated Budget execution on the first eight months of 2009 revealed an estimated deficit of RON 22.3 bn, accounting for 4.5% of the GDP, according to operative data published on Friday by the Ministry for Public Finance (MFP). On 31 August 2009, the General Consolidated Budget revenues stood at RON 103.3 bn, by comparison to the corresponding period of the previous year showing a 6.6% drop. In nominal terms, the income tax revenues were up 5.5% from the same period of the year before, while profit tax revenues declined 15.2% from the same period of last year. In the case of taxes and duties on goods and services a rise of RON 944.5 mn (10.9%) was recorded in excise duties from the same period of the previous year, but also a reduction of VAT revenues of RON 5.537 bn (minus 19.9%). Social security contributions showed a slight increase of 0.9% from the same period of the previous year. Non-fiscal revenues dropped by 13.6% against the corresponding period of the previous year. On 31 August 2009, expenditures from the General Consolidated Budget stood at RON 125.6 bn, up 8.3% from the same period of the previous year.

In other developments, Romania's draft budget law for 2010 will be built on a 5.9%- of-GDP budget deficit projection, finance minister Gheorghe Pogea stated. The volume of funds earmarked for public investments will amount to 6-7% of the GDP. The Finance Ministry asked the other ministries to forward budgetary projections for next year, Pogea added. The Finance Ministry's projections are in line with the targets agreed with the International Monetary Fund. The budget deficit ceiling is set for 7.3% of the GDP this year and below 6% of the GDP in 2010.

FOB-CIF trade deficit of EUR 4.86 bn in seven months

Romania's FOB-CIF trade deficit stood at EUR 4.86 bn, in the first seven months of 2009, or RON 20.58 bn, by RON 27.54 bn, or some EUR 8.3 bn, lower than in the same period of 2008. In the first seven months of this year, the FOB exports stood at RON 69.15 bn, or around EUR 1.63 bn, and the CIF imports at RON 89.73 bn, or around EUR 21.21 bn. In comparison with the same period of last year, the exports fell 6.7% for values expressed in RON, or 19.4% for values expressed in Euros, and the imports fell 26.6% for values expressed in RON, or 36.6% for values expressed in Euros. The value of the inter-community exchanges of goods from January 1 to July 31, 2009 stood at RON 51.38 bn, or around EUR 12.15 bn, for shipments, and from RON 65.78 bn, or some EUR 15.56 bn, for entries, representing 74.3% of the total of exports, and 73.3% of the total of imports. In the first seven months of this year, important quotas in the structure of exports and imports were reported for the following groups of products: transport equipment (42% for export and 32.8% for import) and other manufactured products (35.5% for export and 32.1% for import respectively.)

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