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Romania Business Forecast Report Q3 2014

  • June 2014
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views

Romania's economic recovery will move onto a more sustainable footing and grow by 3.2% in 2014, as private consumption plays a bigger role driving growth. Recovering domestic demand will widen the current account to a 1.6% of GDP deficit in 2014, even as exports remain strong. Inflation and interest rates have hit bottom. The central bank will start hiking the policy rate again in 2014. Banking sector asset quality continues to pose risks, but lending should recover towards the end of the year due to the sector's
progress on deleveraging. Romania will forge closer ties with the West due to regional instability caused by Russia's increasingly aggressive foreign policy position.


Major Forecast Changes

We have revised up our forecast for real GDP to expand by 3.2% in 2014, from 3.0% previously, due to a quicker than expected pickup in domestic demand.

Table Of Contents

Romania Business Forecast Report Q3 2014
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics 1... 8
Closer Ties With West Amidst Uncertainty..8
Ongoing uncertainty in Ukraine and the perceived threat from Russia will prompt Romania to forge increasingly close ties with the West
over the next few years, as well as strengthening its m ilitary.
TABLE: Political Over view ..8
Domestic Politics 2. 10
New Coalition Bad For Stability..10
The merger between the PNL and PDL to form a centre-right opposition coalition will increase policy uncertainty in Romania, due to
growing fears of an opposition victor in the 2014 presidential elections.
Long-Term Political Outlook.. 10
Balancing The Demands Of West/East Influence..10
The strength and quality of Romania's political institutions fall short relative to much of Europe, implying significant challenges ahead
despite the progress made since the fall of communism. With membership of the euro still looking like a distant prospect, and EU
influence on Romania's political trajectory at risk of slowing, there is a growing risk of institutional stagnation, which could jeopardise
some of the improvements made over the last two decades.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings... 13
Economic Activity .. 14
Moving To A Sustainable Growth Model14
Romania's economy will move onto a more sustainable growth path in 2014, as recovering consumption takes some off the pressure of
exports. We forecast real GDP to expand by an above-consensus 3.2% in 2014 and 3.6% in 2015.
table: Economic Activity..14
Balance Of Payments.. 15
Current Account Deficit To Widen..15
Romania's current account deficit will expand in 2014 and 2015, due to recovering imports and increased profit repatriation from foreign
companies operating in the country.
table: Balance Of Payments...16
Fiscal Policy. 17
Fiscal Position No Cause For Concern..17
Romania's budget deficit will pose few risks over the next few yea rs. In fact, a low public debt load will provide the government scope to
relax the pace of fiscal consolidation while remaining within EU deficit targets.
table: Fiscal Policy17
Monetary Policy... 19
Inflation Bottomed, Rates To Rise Again In 2015...19
Recovering demand and base effects will push inflation abo ve the National Bank of Romania (NBR)'s target by year-end, ending any
chance of further cuts to Romania's policy rate.
table: Monetary Policy19
Banking Sector 20
Recovery Moving Onto A Firmer Footing..20
Romania's banking sector has made significant progress deleveraging and will move onto an increasingly solid footing in 2014,
underpinned by recovering demand for consumer and corporate loans.
Currency Forecast... 22
Leu Resilience To Be Short-Lived..22
TABLE: BMI Romania Currency Forecast.22
Regional Banking Outlook.. 23
Emerging Europe: What If The ECB Implemented QE Tomorrow?..23
If the ECB does opt to enact large scale asset purchases, export-driven Central European economies would adopt activist monetary
policy stances to mitigate FX appreciation, whereas Russia and Turkey may stand to bene fit from ECB quantitative easing.
Chapter 3: 10-Year Forecast... 27
The Romanian Economy To 2023... 27
Q2 2014..27
While Romania will struggle to return to pre-crisis growth rates over the next decade, we believe the country's economy has significant
regional potential. We forecast 10-year real average annual growth of 3.9%, with the country's competitive labour force likely to drive
growth and attract investment over the next few years, despite ongoing political inefficiencies and the sluggish pace of the eurozone
economic recovery.
TABLE: Long-Term Macroeconomic Forecasts27
Chapter 4: Business Environment. 29
SWOT Analysis 29
BMI Business Environment Risk Ratings.. 29
Business Environment Outlook. 30
Institutions... 30
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS30
TABLE: BMI LEGAL FRAMEWORK RATING.31
TABLE: LABOUR FORCE QUALITY..32
Infrastructure... 33
TABLE: ANNUAL FDI INFLOWS33
TABLE: Top Export Destinations ...34
Operational Risk.. 36
Chapter 5: Key Sectors.. 37
Defence and Security.. 37
TABLE: Defence Expenditure...37
TABLE: Manpower Available For Militar y Ser vice , 2010-2017 (aged 16-49 unless ot herwise stated )... 38
Pharmaceuticals and Healthcare... 40
TABLE: Pharmaceutical Sales , Historical Data And Forecasts 41
TABLE: Healt hcare Expenditure Trends , Historical Data And Forecasts 42
Other Key Sectors... 45
table: Infrastructure Sector Key Indicators...45
table: Food and Drink Sector Key Indicators.45
table: Oil and Gas Sector Key Indicators.45
table: Telecoms Sector Key Indicators46
table: Autos Sector Key Indicators...46
table : Freig ht Key Indicators 46
Chapter 6: BMI Global Assumptions. 47
Global Outlook. 47
Emerging Market Deceleration47
Table: Global Assumptions.47
Table : Developed States , Real GDP GrowtH , %...48
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %. 48
Table : Emerging Markets , Real GDP Growt h, %..49

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