Romania - Slogging towards steadier growth
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21 Septembrie 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
Summary
GDP
Amid the skittish behavior of external markets and unrelenting fear of the crisis spreading across Europe, we have adjusted downwards the economic outlook of Romania for 2011 and 2012; we now see the economy advancing by 1.4% this year and 2.9% in 2012; the risk of contagion is pretty high and adverse effects could feed through to the Romanian economy by means of lower demand for exports and weaker capital flows.
INDUSTRY
Romania is highly exposed to a slump in foreign demand in the Euro Zone and possible disruptions in foreign capital flows, while a faster deceleration of production prices could hit commodity producers; we expect industry to slow down quicker in 3Q-4Q.
CONSTRUCTION
If the government manages to build up a head of steam in infrastructure projects this year and the recent trend of commercial segment holds up, construction will have the chance to see a ‘zero’ growth in 2011; the residential segment could at best approach zero this year, as household disposable income will remain negative in real terms, while the stock of new dwellings has not yet dried up.
RETAIL SALES
With inflation tailing off in July once the impact of the last year’s VAT hike dissipated, chances of a recovery in retail sales increase; a clearer upward trend in retail sales could be seen only in 4Q, when a stronger positive base effect will kick in; however, this will be not enough for retail sales to turn positive for the whole of 2011.
INFLATION
High uncertainties ahead, starting with the further liberalization of administered prices, continuing with the quality of the agricultural year and last, but not least, developments of the international price of commodities; in a global slowing growth scenario, the latter should exert less pressure on inflation.
FISCAL CONSOLIDATION
The government will continue to struggle to clear up the huge backlog of arrears as much as possible to come closer to the ambitious budget deficit target agreed with IMF/EU for 2012; we do not rule out a fiscal slippage in 2012, but the current IMF/EU arrangement is a guarantee that the cabinet will not be overstepping reasonable limits in an election year.
Economy slowed in 2Q, amid regional downswing
Industry, agriculture and net indirect taxes were the only positive y/y contributors to GDP in 2Q, in line with our expectations. Construction and trade & services again failed to tip over into positive territory and made the local economy slow down to 1.4% y/y. The negative impact of fiscal consolidation weighed heavily on services, knocking 0.6pp off GDP y/y in the second quarter. In terms of expenditures, private consumption and investments continued to disappoint by remaining negative. Surprisingly, net exports came in negative in 2Q and, had it not been for the ‘extremely’ positive impact of inventories (3.4pp), economic growth would have been much lower y/y. However, in q/q terms, household consumption tiptoed into the positive zone (+0.5%), perhaps helped by increases in own consumption following a supportive agricultural year.
Outlook
The sense of foreboding that took hold of the markets lately and the unrelenting fear of debt crisis spreading across Europe will continue to mar investor confidence. Therefore, we have adjusted downwards the economic outlook of Romania for 2011and 2012. We now see the economy advancing by 1.4% this year and 2.9% in 2012, below the country’s LT potential. The risk of contagion is pretty high and adverse effects could feed through to the Romanian economy by means of lower demand for exports and weaker capital flows.
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For the Romanian version of this report, please click here.
