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Intellinews Romania Country Report - Issue 5 2012
Emerging Markets Direct, June 2012, Pages: 25
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.
Encouragingly, the IMF expert team in Bucharest has reached an agreement with the local authorities on a letter of intent (LoI) under the fifth quarterly review of Romania's stand-by agreement (SBA), despite the current political instability that culminated in May with the formation of a new political majority in the parliament. But there are several good reasons for scepticism: weak EU funds absorption, tight fiscal constraints and fragile external demand. Romania's EU funds absorption increased by only 1pps year-to-date in the first quarter of 2012 to 6.65% of the total amount earmarked for 2007-2013, against a 20pps increase target for the whole year. It means only EUR 200mn roughly [some 0.15% of full year GDP], against a full-year target of EUR 3.5bn. The new PM Ponta admitted that is overly optimistic and will probably be missed. The successful Q1 budget execution was achieved only due to some tricks [in advance collections, delayed public payments]. The independent warned of the fiscal slippage risks. The risks of fiscal slippage in Romania remain significant even though the government has revised its deficit target up to 2.2% of GDP from an earlier 1.9% of GDP, the independent fiscal supervisory body in the country warned in an annual report.
The latest IMF visit in Romania, under a two-year programme started last spring, underlined most of the delays mentioned above, likely to aggravate through the year. The LoI leaked, nut yet approved by the Fund’s Board, underlines the significant deviation from the public payment arrears targets. The public payment arrears increased in Q1, instead of decreasing, making the H1 targets unrealistic. This was the price paid for meeting the Q1 budget deficit targets.
Romania's seasonally adjusted GDP edged down by a real 0.1% q/q in January-March, recording a second consecutive quarter of decline following a negative 0.2% q/q performance in the final three months of 2011. The country's seasonally adjusted GDP has stagnated over the past three quarters and the 0.1% decline in Q1 indicates that this trend is continuing rather than signals the start of a technical recession after two consecutive quarters of decline. The European Commission said it has downgraded Romania’s GDP growth forecast to 1.4% from 2.1% for this year and to 2.9% from 3.4% for 2013, but it still expects that the domestic demand will support expansion in the next two years at significant rates.
Romania's exports showed visible signs of fatigue in the first quarter of 2012 when they edged down slightly, by 0.4% y/y in euro terms, due to a 2.2% y/y decline in March. Following exports’ stagnation, industrial production index decreased by an annual 0.4% in the first quarter of 2012, marking the first negative performance since Q3/2009. The annual growth rate remained in the negative territory for both February (-1.4% y/y revised from -1.1%) and March (-1.2% y/y).
Romania's construction works volume index edged down by 1.1% y/y in the first quarter of 2012 after two optimistic 7.9% y/y performances in the previous two quarters. The seasonal and workday adjusted index decreased dramatically, by 8.2% q/q in Q1, after recording positive performances in the past three quarters that contributed to the overall 2.5% increase in 2011.
Romanian banks’ profitability, credit quality deteriorated significantly in Q1. No official Q1 data is available, but leaked data indicate highest loan loss provision cost since Q2/2010. The shift to IFRS accounting from more restrictive national standards have reportedly improved the banks’ profitability. Accounting-wise, the banks' profitability might thus have improved in Q1 (due to the shift to IFRS), but the credit quality has further deteriorated according to the data reported by Mediafax. NPL ratio was above 14% since the end of last year already.
Keywords:
Romania, politics, fiscal, real sector, GDP, forecasts, EBRD, industry, constructions, retail, prices, inflation, labour, market, sales, wages, government, budget, spending, debt, bank, deficit, loan, deposit, insurance, foreign, forex reserves, stock, profit, unemployment
EXECUTIVE SUMMARY
Positive growth in 2012 at risk
Political commitment for reforms to remain weak until November’s elections
Three more reasons for scepticism: weak EU funds absorption, tight fiscal constraints and fragile external
demand
The country already lags in terms of public arrears, privatisation – IMF
Fiscal slippage risks remain significant – fiscal supervisory body
RELATIONSHIP WITH IFIs
On the upside: IMF completes review of Romania’s funding deal despite political instability
… and approves EUR 1bn deferred drawdown option loan deal with World Bank
S&P confirms Romania’s BB+/B sovereign rating and stable outlook
POLITICS
Romanian parliament endorses centre-left cabinet
REAL SECTOR
1 Corporate, structural reforms
2 GDP, forecasts 10
EC expects fiscal consolidation to continue in Romania, adjusts 2012 GDP growth to 14%
Romania’s Q1 GDP shrinks 01% q/q
EBRD upgrades 2012 GDP growth projection for Romania to 12%
3 Industry, Constructions, Retail
Romania’s industrial production index down 04% y/y in Q1
Romania’s construction works down 11% y/y in Q1
Romania’s Q1 retail sales up 37% y/y
4 Prices, Inflation
Romania’s annual inflation to hover close to 3% in next two years – c-bank
Romania’s annual inflation eases sharply to 18% in April
PPI inflation picks up to 65% y/y in April
5 Labour Market
Romania to hike public wages by 16% this year
Sales of technical consumer goods in Romania down 1% y/y in Q1 – GfK survey
FISCAL SECTOR
Government seeks ways to avoid loss of EU funds 16
State extends moratorium on cash compensations for communist nationalisation
1 Budget Execution
Romania’s public spending arrears increase in Q1
Romania’s Jan-Apr budget deficit widens 58% y/y to 083% of GDP
2 Fiscal Policy, Public Debt
Romania’s end-March public debt rises 18% y/y to reach 388% of GDP
FINANCIAL SECTOR
Romanian banks’ profitability, credit quality deteriorate in Q1
1 Bank Loan Quality
Overdue payment on Romanian bank loans up 18pps y/y to 105% of total credits
2 Loans and Deposits
Rise in Romanian bank loans eases to 98% y/y at end-April
Romania’s bank deposits up 158% y/y at end-April
3 Corporate Update
Volksbank Romania reports smaller-than-expected Q1 loss of EUR 7mn
Greek-owned banks in Romania have high capital adequacy ratios
4 INSURANCE
Romanian insurance market stagnates in Q1, 2012
EXTERNAL SECTOR
1 Balance of Payments
Romania’s Q1 C/A deficit narrows 44% y/y to EUR 544mn
2 Foreign Trade
Romanian exports down 04% y/y in Q1 2012
Romania’s Q1 FOB trade gap widens by 18% y/y
3 External Debt
Romania’s external public debt up 22% y/y at end-March
4 Forex Reserves
Central bank’s forex reserves down 24% m/m, or EUR 817mn in May
Table 1: EC Spring Forecast
Table 2: Industrial production (%, y/y)
Table 3: Construction Works Volume Index (%, y/y)
Table 4: Retail Sales Volume Index (% y/y)
Table 5: Consumer, Producer Prices (%, y/y)
Table 6: Wages, employment
Table 7: General government budget (RON mn)
Table 8: Public Debt [% of GDP, eop, ESA]
Table 9: Public Debt [eop, national methodology including borrowing from own reserves funds]
Table 10: Aggregate indicators for credit institutions (eop, unless otherwise indicated)
Table 11: Quality of the stock of bank loans (eop, RON mn unless otherwise indicated)
Table 12: Overdue payments (eop)
Table 13: Total bank loans (EUR bn)
Table 14: Stock of bank* loans to private sector (end April 2012)
Table 15: Stock of bank* deposits from private sector (end April 2012)
Table 16: Current Account (EUR mn)
Table 17: Romania CA balance Jan-Mar 2012
Table 18: Foreign trade (EUR mn)
Table 19: External debt (EUR mn)
Fig 1: GDP, seasonally adjusted (2005=100)
Fig 2: Industrial production
Fig 3: Industrial Production, seasonally & workday adjusted (2005=100)
Fig 4: Industrial Production Volume Index, incl 12-month average % y/y
Fig 5: Construction Works Index (2005=100)
Fig 6: Construction Works, seasonally & workday adjusted (2005=100)
Fig 7: Construction Works Volume Index, incl 12-month average % y/y
Fig 8: Retail Sales Index, workday & seasonally adjusted (2005=100)
Fig 9: Retail Sales Volume Index, gross index (2005=100)
Fig 10: Central Bank’s Inflation Forecast
Fig 11: Consumer Price Index (y/y)
Fig 12: PPI vs CPI (y/y)
Fig 13: Unemployment (%)
Fig 14: Unemployment vs employment
Fig 15: Average net wage
Fig 16: Public debt (EUR mn)
Fig 17: Net profit vs provision cost (EUR)
Fig 18: Bad loans provisions (EUR bn)
Fig 19: Bad loans (EUR) and NPL ratio
Fig 20: Overdue, % of total loans
Fig 21: Stock of credit, by debtor (EUR mn)
Fig 22: Stock of forex, domestic loans
Fig 23: Deposits- forex, domestic currency
Fig 24: C/A deficit in rolling 12M
Fig 25: Rolling 112M exports (EUR mn)
Fig 26: FOB exports vs imports (EUR mn)
Fig 27: Exports (EUR mn)
Fig 28: Ext Debt vs forex reserves (EUR mn)
Fig 29: External debt (EUR mn)
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