2011 Outlook: Will It Be a Better Year for the Romanian Economy?
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Noiembrie 2010 |
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IULIAN SORESCU - Associated Partner, Head of Financial Department
NOERR FINANCE & TAX S.R.L. |
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IULIAN SORESCU
Associated Partner, Head of Financial Department
NOERR FINANCE & TAX S.R.L.
A new year of crisis is almost ready and we all are questioning ourselves if 2010 was better or worse than 2009.The comparison with 2008 is even worthless, as 2008 was only a shy start of the crisis. At that time, America wasboiling over the collapse of hundreds of banks and Europe was really worried. Romania at that time was onlylooking at the "TV show" and refused being an actor. Slowly, the crisis became deeper and deeper and pulledRomania in a black recession.
Thinking back, we cannot say that Romania was in a crisis, as no bank went bankrupt. If hundreds of banks went out in America, Romania was only worried about the possible money pull-out of the foreign banks into their origin countries. And this was anyway covered by the agreement with IMF, which solved temporarily the cash shortages. Talking about crisis, what crisis? People remained skeptical at the beginning, still spending money, but at a lower level.
The first signals of an economic downturn were shown by companies. They were the engine of the economy during the boom years and they have now put the shifter into a lower gear. And they were the first ones showing austerity measures, not the Romanian citizens.
2010 still using the reserves
The graphic on this page shows a long row of years with economic growth, years in which economy steadily increased and designed a long term successful model based on foreign investments attracted by the low cost, but highly qualified, Romanian workforce. An average of 5.8% growth in GDP was quite a good performance even for an emerging market, some of the economic figures of the Romanian economy being topics of discussion for West economies for several years. And after such good years and a 7.3% economic increase in 2008, a downturn of 7.1% was really unbelievable. Nobody expected such a sharp drop in GDP, a 2-3% decrease would have been more easier accepted.
Moving further and analysing the resources of companies during the current year, it is rather difficult to identify companies generating positive value to their business. These companies are maybe targeted to stable industries/clients or to niche businesses, or simply perform better due to their flexible business model. But anyway, most of the companies are now surviving based on reserves accumulated during prior years. The longer the number of years with negative results, the less reserves companies still have. Some of them have almost spent everything gained in the past and do not have anything else left. They are now at the bottom level and unless belonging to a group of companies or not getting finance from shareholders, banks or any other party, they are now moving into insolvency, the last step before bankruptcy. Even multinational companies hardly decide to finance the small Romanian branches, as their resources are also limited. In a word, this is recession.
What are the rumpled sectors?
Like most countries, the Construction, Real estate and Trade sectors were drastically hit. For example, the construction field turned down from a positive 30% increase at the peak level to a 16-17% shrank compared to the prior quarters. The National Institute of Statistics, that is regularly publishing the figures presented in the below graph, is now collecting more and more figures in an effort of preparing more complex and up-to-date radiography of the Romanian economy. With all these figures, it is clear that most of the economic sectors are simply trying to survive, any positive figure coming from authorities being treated with happiness, on one hand, and with skepticism on the other hand.
