Weekly Financial Focus
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14 Ianuarie 2011 |
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BANCA COMERCIALĂ ROMÂNĂ S.A. |
Adresa
Bulevardul Regina Elisabeta, Nr. 5
Bucureşti, Sector 3
Telefon
+40-21-314.91.90
+40-21-312.61.85
Fax
+40-21-310.02.46
+40-21-311.18.19
Website
www.bcr.ro
News
Key messages from the CB Governor
During a TV broadcast aired by the national television, central bank Governor Mugur Isarescu made several comments on the current situation in Romania. We present below the key messages from his interview:
- VAT hike could have been avoided, and was the most dangerous for the Romanian economy; Romania is now over the hump in terms of further negative effects from the VAT increase in last July; this move could have had a much 'more' negative impact on funding the state budget and on the economy.
- Adjusting wages in the public sector to fit the country capacity to generate budget revenues is the best move adopted with long term positive effects. High-octane exuberance that gripped the nation in the wake of EU accession in 2007 came along with the slogan that once in EU, Romanian should live like in EU which was completely wrong and dangerous.
- Back in 2005, wages in the public sector were just 5% of GDP, while in 2009 they climbed to 9%; they would have reached 10% if things would have gone in the same direction; a country like Romania cannot generate budget revenues higher than 32-33% of GDP.
- No further corrective moves are needed, but Romania still has to remain prudent and consistent in what the public reforms are concerned; Romanian authorities plan to continue the relation with the IMF and EU as well as other international financial institutions.
- The government should send out a positive signal regarding the arrears which affect the country credibility; this is a big problem and it is not only the government that should take measures; it's a habit and this habit should be completely abandoned; however, this problem cannot be worked out over night.
- A fiscal amnesty is not a solution since it would give rise to moral hazard and bad habits; expectations for another amnesty will be created, that's why fiscal amnesties are very dangerous.
- The beginning of 2011 gives us some reasons for optimism, but we should maintain a cautious approach; there is too much eagerness as though the overall situation could improve immediately; there are, however, good chances for the economy to turn positive this year, but the recovery will be just gradual.
- Exports are the main driver for industrial output; the industry figures for November support the upward trend and it is good that the growth rates are not too high which would have raised some question marks; the fact that industry goes up gradually and tend to consolidate gives hopes.
- Areas that reported the steepest falls such as construction and investments have nearly found bottom and from now on they will no longer drag the economy down; if the infrastructure programs are implemented, construction too could recover; there are also hopes for a better agricultural year in 2011.
- The main focus for the central bank in 2011 is to see inflation slowing down, after the VAT hike by 5pp; second round effects were moderate and this has made it possible for the central bank to keep the key rate flat at 6.25% at the last Monetary Council in early January; an increase in the key rate would have only stoked fears for a higher inflation and second round effects would have been more intense.
- Central bank has no official target for EURRON, and stepped in to prevent leu from fluctuating too much against a backdrop of market awash with liquidity; central bank sticks to the managed floating regime and acknowledges that 4.1-4.3 is a reasonable band for leu.
IMF mission in Bucharest as of January 25th
A new IMF mission led by Jeffrey Franks is due to come to Bucharest on January 25th to perform the seventh economic review of the country within the current EUR 20bn rescue package. The mission is expected to launch negotiations for a new agreement with the Fund and plans to meet with political parties, trade unions, employers associations and banks said Tonny Lybek, IMF representative for Romania and Bulgaria. The review mission stays in Bucharest until February 8th and the conclusions of the report will be presented to the Romanian authorities and then to the IMF Board of Directors. The eighth tranche of EUR 1bn could be disbursed soon after IMF Board gives the green light. The IMF mission will team up with EU and World Bank during the economic review starting in late January. IMF disbursed the seventh tranche of EUR 900 million on Monday last and this was conditional upon Romania meeting all the requirements asked by the Fund. Romania has made a significant progress in terms of public reforms and this has been acknowledged by IMF and World Bank, but there is a lot to be done ahead. The budget deficit target for end-2010 was met, but the arrears remain at issue. So far Romania has received around EUR 11bn from IMF out of EUR 12bn and plans to conclude a precautionary agreement with the Fund after the current deal comes to an end.
Registered unemployment rate inched down in December
Registered unemployment rate slipped for the ninth month in a row in December to 6.9% contrary to market expectations. This is pretty quirky inasmuch as payrolls continued to shrink while the number of retirements did not increase too much over this period of time. On top of that, the government has recently announced that the total number of public servants had declined to 1.27 million by end-November 2010 from 1.39 million just a few months before. Total number of registered unemployment stood at 630tsd down from 765tsd in March 2010. Romania is likely to see a slight recovery in 2011 and therefore there are pretty good chances for the unemployment to drop towards 6.5%.
Real economy
