2009 – The Year of Correction
 |
Aprilie 2009 |
 |
UNICREDIT TIRIAC BANK S.A. |
Adresa
Strada Gheţarilor, Nr. 23-25
014106 Bucureşti, Sector 1
Telefon
+40-21-200.20.00
Fax
+40-21-200.20.02
Website
www.unicredittiriac.ro
Outlook
Economic growth is forecast to slow rapidly in 2009, against a tight global capital flow backdrop. The positive flipside of this,however, is a significant reduction in the current account deficit and a sharp improvement in the inflation outlook. Fiscalpolicy and further sovereign credit ratings downgrades remain risk factors – which continue to warn of upside pressure onEUR/RON in 2009.
First clear signs of the real economy slowing amid global crisis
Despite robust economic growth of 8.9% y-o-y in the first three quarters of 2008, Romania’s vulnerability and exposure to the global financial crisis became apparent in Q4 with the first clear signs of the real economy slowing to 2.9% in Q4 that resulted in full-year 2008 growth of 7.1% y-o-y.
The performance of the economy in 2008 has been driven by the still buoyant construction (above 26% y-o-y growth in 2008) and good agricultural production (21.4% y-o-y 2008). Investment demand registered an impressive level of 19.3% y-o-y in 2008, strongly supported by the construction sector. The solid growth momentum of investments has also been sustained by the impressive inflow of FDI, that has reached EUR 9 bn in 2008 despite the global recession and liquidity crunch. The sharp rise in total investment in 2008, besides construction oriented investments, was boosted by investment in capital goods including transport equipment (14% y-o-y in 2008), allowing for further upgrades of production capacity to sustain business opportunities on the longer-term.
Looking only at the last quarter of the year, a sharp seasonally adjusted contraction has been registered. The Romanian economy grew by 2.9% y-o-y in Q4 2008, decelerating from the previous quarter’s 9.2% growth. Strong corrections have been registered in private consumption, slumping from 14.6% of previous quarter to -3.7% while investment stayed positive at 2.8%, but was significantly down from 27.7% growth registered in the first three quarters. Exports suffered too, but the strong import drop (-10% y-o-y) resulted in improving the net export contribution. Industrial production contracted significantly by -7.7% y-o-y, while financial, real-estate rental and business activities decreased by -1.5% y-o-y in Q4. From the production side, growth in Q4 was supported by agricultural production (+18.2% y-o-y) and construction activity (+18.9% y-o-y).
Romania has been affected by the global financial crisis just as other countries in the CEE region. The national currency suffered a 6.7% drop in Q4 and an overall devaluation of 10.4% in 2008. This has prompted waves of sell-offs on the national stock market which registered a 33% drop in Q4 and an overall 70% fall of the BET index in 2008. Moreover, the Romanian economy started to face the increasing probability of a hard landing scenario, as suggested by the rating agencies in their downgrade reports. Standard & Poor’s and Fitch downgraded Romania’s sovereign debt to BB+, below investment grade in October and November respectively. This intensified the country risk premium, signified most aptly by CDS topping 7.45% in November 2008 from an average of 0.3% for 2007.
On the positive side, however, the strongly decelerated domestic demand will lower the country’s exposure to external vulnerability through amelioration of international imbalances. In addition, the depreciated local currency is expected to improve the price competitiveness of Romanian products on the international market. Serious steps are still needed from the authorities in order to prevent a sharp investment and production drop that might threaten the business development and the country’s long term potential.
