Economic overview - July 2010
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7 Septembrie 2010 |
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RAIFFEISEN BANK S.A. |
Adresa
Piaţa Charles de Gaulle, Nr. 15
011857 Bucureşti, Sector 1
Telefon
+40-21-306.10.00
+40-21-306.15.54
Fax
+40-21-230.07.00
Website
www.raiffeisen.ro
Highlights
Following the review at the end of July, technical missions from the IMF and the European Commission had a favourable assessment regarding the policies pursued by Romanian authorities by the end of June. They said also that the austerity measures implemented starting 1st of July are important and they might allow the government to achieve this year's budget deficit target of 6.8% of GDP. Accordingly, technical missions recommended disbursement of additional tranches from the multilateral financing package agreed in 2009 (EUR 900 mn from the IMF and EUR 1.2 bn from the EC).
On 18 August, the government approved this year's first budget revision. Target for budget revenues was cut by 0.4%, while target for public expenses was reduced by 2.2%. More money was allocated to the Labour Ministry (+RON 4.4 bn) for paying social benefits (i.e. pensions) in H2 2010 and to Health Ministry (+ RON 2.9 bn) to pay its arrears.
Real GDP advanced by 0.3% qoq in Q2 2010. The annual growth rate improved to - 0.5% yoy in Q2 from -2.6% yoy in Q1. Most of the indicators (industrial output, retail sales, and market services for population) improved between March and June. However, the advance in real GDP was also supported by the increase in the inventories. We think that the second quarter has large chances to remain the best quarter from 2010. The austerity measures applied starting July 1st should have a negative impact on GDP dynamic in the second half of the year.
Annual rate of inflation climbed to 7.1% yoy in July from 4.4% yoy in June following the hike in VAT from 19% to 24%. As expected, the pass-through from the increase in VAT to the increase in prices was incomplete in the first stage (67%). We expect low second round effects due to weak domestic demand.
Finance Ministry refuses further to pay more than 7% to raise debt on the local markets. So, the effective borrowed amounts were low in recent three months, and they were mainly in short-term. However, in July, Finance Ministry succeeded to borrow EUR 1.2 bn in a 1-year Tbill on the local market in euro, paying 4.9%. Also, a 3-year Euro Medium Term Notes program amounting to EUR 7 bn was announced. First issue is expected for Q4 2010.
Recent important events
Sales of new passenger cars
Inception of the car scraping program for 2010 was followed by an increase in sales of new passenger cars between March and June. The number of new passenger cars sold in Q2 was by around 39% higher compared with the first quarter of the year, although it remained 14% below the level from Q2 2009. The governmental program for 2010 was more attractive and more flexible compared with the 2009 version. This year, a person was allowed to use 3 vouchers to buy a new car, each voucher being received in exchange for an old car. Moreover, the vouchers were not nominal, and so they could be traded in a secondary market.
However, data for July showed that new passenger cars dropped again (25% mom based on preliminary seasonally adjusted data). We think that decline in the sales of new passenger cars in July is likely to reflect mainly the impact of the austerity measures announced by the government at the beginning of July.
