Weekly Financial Focus

20 Martie 2011

BANCA COMERCIALĂ ROMÂNĂ S.A.

 

News & real economy

Vote of no-confidence against government rejected. As expected, on Wednesday Romania's government survived the fifth no-confidence vote introduced by the opposition in the last year, thus allowing the cabinet to press ahead with the reform package agreed by the IMF. The Social-Liberal Union (SLU) had filed a motion over the Labor Code, but failed to secure the 236 votes necessary to topple the government. They only managed to get 212. The opposition did not get much support from trade unions, as protests mounted outside the Parliament during the debate on the motion gathered a mere seven thousand people, well below the expected fifty thousand announced by trade union leaders.

The recently amended Labor Code will pave the way for increasingly flexible labor market conditions and an enlarged contributor base to the social assistance scheme. At the same time, the Code will facilitate the creation of new jobs and will attract foreign investment. When compared to its regional peers, Romania remains comparatively more attractive in terms of labor costs relative to average productivity gains, but the use of this precious resource has been so far pretty drastically limited by an obsolete Labor Code, no longer in line with EU standards.

President Basescu favors independent technocrat as prime minister in the next period. President Basescu recently said, during a meeting with Democrat-Liberal leaders, that he fully supports Prime Minister Boc running for the office of president of the Democrat-Liberals, but an independent technocrat would be more appropriate as PM in the period ahead and that he would reserve the right to pick the timing for making a nomination. He explained that the Democrat-Liberal party should not give up Emil Boc, since this could be seen as backtracking on the reforms the current cabinet has struggled to implement. We see a higher chances for President Basescu to nominate a PM after the 1Q11 results are released (May), counting probably on a second consecutive quarter of economic growth and further improvement in the overall macro conditions.

The economic recovery, along with a brand new precautionary deal with the IMF and EU aimed at further consolidating public reforms in Romania, could be a successful exit strategy for the cabinet in power. This move will clear the way for a new cabinet led by an independent technocrat to be sworn in and thus the overall picture of the Democrat-Liberals having been pretty drastically damaged by the implementation of severe reforms will probably start to improve. Since there is a pretty good chance of the current coalition remaining in power, with or without an independent prime minister, we still see 5-year yields declining towards 6.8% in September. Pushing ahead with the fiscal consolidation plan and closing another agreement with the IMF and European Commission should normally support this trend.

Exports soared almost 48% y/y in January. The staggering exports growth rate turned the monthly foreign trade balance positive, while imports reported a much slower advance (29% y/y). Considerable external demand, coming from both EU and non-EU countries, made exports reach an all-time high for January. This trend is likely to hold, keeping in mind that local managers anticipate further positive trends, especially in automotive, metallurgy and metallic construction, and electric equipment, which are among the core exporters in Romania.

Exports amounted to EUR 3.4bn and were 80% higher than the January average in the last seven years, which is quite an impressive performance. Machines and transport equipment continued to be in the lead, holding almost 42% of total exports. Imports (FOB) stood at EUR 3.3bn. The positive foreign trade balance in January kept the C/A deficit at a very low level (EUR -15mn), while the FDI coverage ratio surged to 1600%. We see the C/A deficit at around 5% of GDP in 2011.

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The tricky lag LUCIAN CROITORU Adviser to the Governor - BANCA NAŢIONALĂ A ROMÂNIEI Lucian Croitoru, Adviser on monetary policy issues to the National Bank of Romania Governor, talks about the NBR’s next moves and explains why the decrease ofthe policy rate hasn’t been reflected into lower interest rates on bank loans. mai mult... The turnaround CRISTIAN SPORIS Secretar de Stat - MINISTERUL ECONOMIEI ŞI FINANŢELOR Cristian Sporis, Secretary of State at the Ministry of Public Finance, in charge with the national treasury and public debt, explains how the state managed to borrow money at the lowest costs in the last seven years and how it turned from a clear market taker into a player with a strong position on the market. mai mult...