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Romania Country Report
Description:
The IntelliNews Romania Country Report is a monthly report, covering the major macroeconomic indicators and trends in Romania, as well as important political developments. Prepared by local analysts, it provides the most accurate data, updated regularly according to the data changes noted by the whole range of statistics sources. It will save the time you would need to track the figures and sources independently and will provide you with thorough analysis.
March 2012 - Summary
A 1.5-2% GDP growth rate can be easily achieved this year, finance minister Bogdan Dragoi claimed during a conference, but the short-term indicators call for slightly more moderation. It is broadly agreed that Q1 will mark a negative q/q performance but it is also generally expected that the government would do all the best to spur economy by any means in this electoral year. The government has already agreed to hike the public wages in June and also presses the tax collection agency to bring supplementary EUR 2bn (1.5% of GDP) in a couple of months in order to finance higher wages and investments. But industrial production and exports already show signs of fatigue after a couple of years of recovery. It is anyway unrealistic to expect export growth rates similar to the 20-30% rates in 2010-2011. Further deterioration of the sentiment on foreign markets would inhibit even more the country’s exports. The spring forecast of the state forecasting body actually indicates the sectors of services and of constructions as supporting the growth to more extent this year.
Another concern related to this year’s growth is the financial intermediation, which remains sluggish in spite of the central bank’s efforts. The monetary policy interest rate dropped by 1pps to 5.25% since the end of last year and the banks’ loan loss provisions decreased by EUR 2bn overnight as a result of looser provisioning policies. The Treasury borrows much cheaper consequently, but the credit market remains frozen. The households improved their net position against banks to EUR 2.6bn (2% of GDP surplus) at the end of January. Their net position doubled from EUR 1.3bn last year. In the meanwhile, the companies’ net borrower position (loans minus deposits) expanded by only EUR 1bn to EUR 12.3bn.
The industrial production index increased by 1.2% on the year in January and was up by an annual 0.9% in the core manufacturing sector. The industry thus performed marginally better, beating our expectations formed on the grounds of a 1.1% annual contraction in the real industrial turnover. But these mismatches tend to compensate over time. Country’s exports increased by only 1.4% on the year to EUR 3.465bn in January after surging by a cumulative 55% over the past two years ending in December 2011. Last year's exports exceeded by 33% the precrisis peak reached in 2008 while the industrial activity is only around 3% against the peak level in 2008. The much slower industry’s performance reflects the weak domestic demand that failed to recover in the way the external demand did.
March 2012 - Summary
A 1.5-2% GDP growth rate can be easily achieved this year, finance minister Bogdan Dragoi claimed during a conference, but the short-term indicators call for slightly more moderation. It is broadly agreed that Q1 will mark a negative q/q performance but it is also generally expected that the government would do all the best to spur economy by any means in this electoral year. The government has already agreed to hike the public wages in June and also presses the tax collection agency to bring supplementary EUR 2bn (1.5% of GDP) in a couple of months in order to finance higher wages and investments. But industrial production and exports already show signs of fatigue after a couple of years of recovery. It is anyway unrealistic to expect export growth rates similar to the 20-30% rates in 2010-2011. Further deterioration of the sentiment on foreign markets would inhibit even more the country’s exports. The spring forecast of the state forecasting body actually indicates the sectors of services and of constructions as supporting the growth to more extent this year.
Another concern related to this year’s growth is the financial intermediation, which remains sluggish in spite of the central bank’s efforts. The monetary policy interest rate dropped by 1pps to 5.25% since the end of last year and the banks’ loan loss provisions decreased by EUR 2bn overnight as a result of looser provisioning policies. The Treasury borrows much cheaper consequently, but the credit market remains frozen. The households improved their net position against banks to EUR 2.6bn (2% of GDP surplus) at the end of January. Their net position doubled from EUR 1.3bn last year. In the meanwhile, the companies’ net borrower position (loans minus deposits) expanded by only EUR 1bn to EUR 12.3bn.
The industrial production index increased by 1.2% on the year in January and was up by an annual 0.9% in the core manufacturing sector. The industry thus performed marginally better, beating our expectations formed on the grounds of a 1.1% annual contraction in the real industrial turnover. But these mismatches tend to compensate over time. Country’s exports increased by only 1.4% on the year to EUR 3.465bn in January after surging by a cumulative 55% over the past two years ending in December 2011. Last year's exports exceeded by 33% the precrisis peak reached in 2008 while the industrial activity is only around 3% against the peak level in 2008. The much slower industry’s performance reflects the weak domestic demand that failed to recover in the way the external demand did.
Contents:
EXECUTIVE SUMMARY
FOCUS STORY: Bank lending fails to revive.
-Central bank cuts again monetary policy interest rate
-but financial intermediation remains weak.
-Bankers advocate for lower required reserve ratios.
RELATIONSHIP WITH IFIs
-IMF approves further EUR 500mn to Romania after fourth stand-by loan review
-and assesses ex-post positively the past SBA
-still mentioning that NPL and government arrears remain problematic.
-Romania signs European fiscal consolidation pact
-EBRD to invest EUR 400-500mn annually in Romania in next three years
POLITICS
-Tensions within senior ruling part surface
-EC president Barosso encourages Romania's Schengen bid
-while the Netherlands is less encouraging.
REAL SECTOR
1. Corporate, structural reforms
2. GDP, forecasts
GDP grows by 1.9% y/y in Q4 2011.
Invetsments in Romania 9.2% up y/y nominally
GDP growth to ease to 1.7% in 2012 - state forecasting body.
3. Industry, Constructions, Retail
Industrial production up 1.2% y/y in January 2012
Construction works index up 15% y/y in January 2012.
Retail sales up 10.2% y/y in January 2012.
4. Prices, Inflation
Producer price inflation eases to 6% y/y in January 2012.
5. Labour Market
Ruling coalition agrees to hike public wages as of June
FISCAL SECTOR
Romania taps US bond with another USD 750mn issue, plans more issues in H2
1. Budget Execution
General government slips into 0.44%-of-GDP deficit in Jan-Feb.
2. Fiscal Policy, Public Debt
Public debt hits 34.3% of GDP at end-2011.
Yields on Romania’s 6-month T-bills near 5%, down 1.5pps ytd.
FINANCIAL SECTOR
Romanian banks get EUR 2bn from loosened provisioning requirements
1. Bank Loan Quality
Stock of overdue payments exceeds 10% of total bank loans
2. Loans and Deposits
Annual growth of corporate lending slows down in February
Bank deposits up 10.8% y/y at end-February.
3. Monetary Policy
Central bank cuts policy interest rate to 5.25% on March 29.
EXTERNAL SECTOR
1. Balance of Payments
C/A deficit narrows 73% y/y in January 2012
2. Foreign Trade
Exports up a mere 1.4% y/y in January 2012
3. External Debt
Romania’s external public debt up 22.4% y/y at end-January
4. Forex Reserves
Romanian central bank’s forex reserves up 2.1% m/m in February "
FOCUS STORY: Bank lending fails to revive.
-Central bank cuts again monetary policy interest rate
-but financial intermediation remains weak.
-Bankers advocate for lower required reserve ratios.
RELATIONSHIP WITH IFIs
-IMF approves further EUR 500mn to Romania after fourth stand-by loan review
-and assesses ex-post positively the past SBA
-still mentioning that NPL and government arrears remain problematic.
-Romania signs European fiscal consolidation pact
-EBRD to invest EUR 400-500mn annually in Romania in next three years
POLITICS
-Tensions within senior ruling part surface
-EC president Barosso encourages Romania's Schengen bid
-while the Netherlands is less encouraging.
REAL SECTOR
1. Corporate, structural reforms
2. GDP, forecasts
GDP grows by 1.9% y/y in Q4 2011.
Invetsments in Romania 9.2% up y/y nominally
GDP growth to ease to 1.7% in 2012 - state forecasting body.
3. Industry, Constructions, Retail
Industrial production up 1.2% y/y in January 2012
Construction works index up 15% y/y in January 2012.
Retail sales up 10.2% y/y in January 2012.
4. Prices, Inflation
Producer price inflation eases to 6% y/y in January 2012.
5. Labour Market
Ruling coalition agrees to hike public wages as of June
FISCAL SECTOR
Romania taps US bond with another USD 750mn issue, plans more issues in H2
1. Budget Execution
General government slips into 0.44%-of-GDP deficit in Jan-Feb.
2. Fiscal Policy, Public Debt
Public debt hits 34.3% of GDP at end-2011.
Yields on Romania’s 6-month T-bills near 5%, down 1.5pps ytd.
FINANCIAL SECTOR
Romanian banks get EUR 2bn from loosened provisioning requirements
1. Bank Loan Quality
Stock of overdue payments exceeds 10% of total bank loans
2. Loans and Deposits
Annual growth of corporate lending slows down in February
Bank deposits up 10.8% y/y at end-February.
3. Monetary Policy
Central bank cuts policy interest rate to 5.25% on March 29.
EXTERNAL SECTOR
1. Balance of Payments
C/A deficit narrows 73% y/y in January 2012
2. Foreign Trade
Exports up a mere 1.4% y/y in January 2012
3. External Debt
Romania’s external public debt up 22.4% y/y at end-January
4. Forex Reserves
Romanian central bank’s forex reserves up 2.1% m/m in February "
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