Romania - Catching its breath
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18 Decembrie 2009 |
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BANCA COMERCIALĂ ROMÂNĂ S.A. |
Adresa
Calea Victoriei, Nr. 15
Bucureşti, Sector 3
Adresa
Bulevardul Regina Elisabeta, Nr. 5
Bucureşti, Sector 3
Adresa
Strada Rabat, Nr. 21
Bucureşti, Sector 1
Website
www.bcr.ro
Summary:
- The economic contraction slowed down in 3Q09; Romania could exit the recession in 4Q09 or 1Q10 in q/q terms, if the trends in the Eurozone continue to improve; net exports made a positive contribution to GDP growth in 3Q09
- Although depressed, industry continued to recover y/y in 3Q09; external demand was an upward driver in industry, while the domestic counterpart remained sluggish; a full recovery of local industry will be difficult without the help of domestic demand
- Agriculture surprised to upside in 3Q09 and made a strong positive contribution to GDP formation (1pp); unlike 2008, when production in agriculture was affected in late summer and autumn by less favorable weather conditions, the weather held up this time, with maize production up almost 10%
- Residential and commercial segments in construction sector deepened their fall; developments in infrastructure were somewhat better than in the previous quarter
- The labor market was strained by the recession; unemployment has risen constantly in the last year - mostly in the private sector, where various industries have faced major challenges, triggered by demand contraction (both domestically and abroad)
- The external imbalance has seen a "fast and furious" adjustment; the foreign trade deficit continued to fall in 3Q09, with machines & transport equipment again reporting the strongest adjustment
- Disinflation continued in 3Q09 amid mixed signals from the market; however, inflation is likely to overshoot inflation target as of end-2009
- Fiscal consolidation is the name of the game in the years ahead; after a strong pro-cyclical fiscal policy in recent years, which fuelled the macroeconomic imbalances, Romania should undergo a painful but necessary fiscal consolidation program in the following years
Economic contration slowed down in 3Q09; agriculture surprised to upside
After a positive surprise delivered by 3Q09 real GDP data (-7.1% y/y and -0.6% q/q, vs. market estimates of -9% y/y), the prospects for the coming quarters have become more encouraging. Romania could exit the recession in 4Q09 or 1Q10 if the trends in the Eurozone continue to improve. Net exports made a positive contribution to GDP growth in 3Q09, as imports fell while exports increased in real terms on a y/y basis. The support of external orders from Eurozone countries (especially from Germany and France, which together account for some 48% of Eurozone GDP) was of particular importance for this positive development of Romanian industry and exports.
After becoming a serious drag on economic growth in early 2009, inventories made a positive contribution to real GDP in 3Q09. The contribution of domestic demand remained negative. Companies refrained from making investments during these difficult times, which could reduce potential GDP by 1-2pp in the years after the current crisis.
Household consumption remained in negative territory, as labor market conditions were difficult - nominal wages slowed down, the number of unemployed people increased and the uncertainties regarding the potential implementation of tough reforms asked for by the IMF and EU in 2010 affected consumers' behavior. All of this translated into considerably lower demand for new consumer loans. Government consumption shrank in 3Q09, following some cost cutting schemes adopted in the public sector to contain the fast-growing budget deficit. Recovery in 2010 remains highly dependent on the strength of the economic rebound in major markets and especially the Eurozone. At the same time, an ambitious fiscal consolidation program in 2010 could lead to slower economic growth in the near future. However, the important gains in terms of international credibility (due to the implementation of sound fiscal policies) should prevail in the long run.
OPINII
