Weekly Financial Focus - October 14th
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14 Octombrie 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
- Inflation hits all-time low in September
- C/A deficit continues to shrink
- BSE: Investors’ sentiment continued to deteriorate
News & real economy
Inflation hits all-time low in September
Inflation dropped 0.2% m/m in September while the market consensus was way off the mark this time (+0.2% m/m). Our forecast stood at 0% m/m. In annual terms, inflation came down to 3.5%, entering thus the NBR targeted range (3%±1pp). Vegetables and fruits were again the main downward driver for inflation in September too, knocking more than 0.5pp off the monthly inflation. The overall price of food items fell by 0.2% m/m, while the prices of non-food products and services increased by 0.2% m/m and 0.6% m/m respectively following the monthly depreciation of the leu and further hikes in some administered prices (water andsewerage services, railway transport).
In light of the latest data on inflation, we have revised downwards our inflation estimate for December 2011 to 3.3% y/y. At the same time, we raised our forecast for December 2012 to 4.1% y/y, slightly above the NBR target. The improved performance could not hold for too long and annual inflation could resume its upward trend breaking the upper limit of the target band in 4Q12. Lack of clear price liberalization agenda and further hikes in administered prices combined with a weaker performance of agriculture next summer are the main upward drivers for inflation in the year to come. We foresee a flat key rate at 6.25% in 2011-12, as next year’s elections create some fiscal risks, while the international environment is likely to remain treacherous.
We revised our 2012 economic growth forecast downward to 1.9% (from 2.9%) and to 2.8% for 2013 (from 3.6%), due to the delayed solution to the Eurozone sovereign debt crisis, concerns over the long-term sustainability of US fiscal policy and the slowdown in some emerging markets. At the same time, a bumper agricultural crop in 2011 creates a negative base effect for 2012 economic growth given the high share of agriculture in gross value added (around 7%). The fiscal performance will be weaker and the budget deficit of the general government (ESA95 methodology) is now estimated at 4.2% of GDP in 2012 and 3.8% of GDP in 2013. Nevertheless, we think that the current precautionary stand-by arrangement with the IMF and EU will remain on track because the government has already proved its determination to consolidate public finances and the structural budget deficit will stay below 3% of GDP. We maintain our capital market forecasts and foresee a EURRON FX rate of 4.2 and 5Y yields at 7.3% in December 2012.
C/A deficit continues to shrink
In January-August, the C/A deficit fell by 19.7% y/y, to EUR 3.3bn, following a decrease in the trade deficit and an increase in the surplus of net current transfers. The annualized figure came in at around 3.4% of GDP. The improved performance of net current transfers was ascribed to higher inflows of European funds, while remittances of Romanians working in countries like Spain and Italy remained depressed. FDI was particularly weak in January - August and amounted to only EUR 1.1bn (-52% y/y), as inter-company lending almost came to a halt. A direct effect of very low foreign investments is a decline in potential GDP in the next few years. The C/A deficit will stay at 4.6-4.7% of GDP in 2012-13 and will pose no threat to financial stability.
FX, money market and FI
