Romania Business Projection Industry Update Quarter 1 2012

Executive Summary ... 5
Core Views ....5
Major Forecast Changes ...5
Risks To Outlook ....5
Chapter 1: Political Outlook .. 7
SWOT Analysis .. 7
BMI Political Risk Ratings 7
Domestic Politics .. 8
Ponta Victory Likely: Political Strife To Continue ....8
TABLE: POLITICAL OVERVIEW 8
Waning EU Influence Threatens Reform Agenda .9
The strength and quality of Romania's political institutions fall short relative to much of Europe, implying significant challenges are
ahead despite the progress made since the fall of communism. With membership of the euro looking increasingly unlikely within the next
decade, and EU influence on Romania's political trajectory set to wane, there is a growing risk of institutional deterioration, which could
seriously jeopardise many 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
Growth Outlook Takes A Turn For The Worse ..14
Disappointing Q312 data released by the Romanian Institute of National Statistics have led us to revise our forecasts for real GDP
growth to 1.7% in 2013 and 3.1% in 2014, from 2.2% and 3.5% respectively. In line with our previous forecast (see our online service,
September 9 2012, ' Teetering On Full Year Recession '), real GDP growth slowed in Q312, contracting by 0.5% y-o-y, the largest
quarterly GDP contraction since Q410. It grew by just 0.2% y-o-y in unadjusted, real GDP terms in the first nine months of 2012.
TABLE: GDP CONTRIBUTION TO GROWTH ....14
Balance Of Payments . 16
Financial Account Volatility To Continue 16
Although we are revising down Romania's current account deficit forecast for 2012 and 2013, the external account looks far from stable.
By approving the next instalment of the Stand-By Agreement in September 2012, the EU and IMF provided a lifeline to help cover the
current account deficit until the December 9 legislative elections. With Prime Minister Victor Ponta set to remain in power, Romania's
ability to continue securing this funding could come under threat.
TABLE: BALANCE OF PAYMENTS (EURO) 16
Fiscal Policy .... 17
Deficit Narrowing, But Long Term Risks Remain ....17
Recently released Q212 data has persuaded us to revise our fiscal deficit forecast to 2.8% of GDP in 2012 and 1.6% in 2013, from 3.2%
and 2.1% respectively. Romania's budget deficit was RON6.8bn in H112 (1.1% of GDP), representing a significant improvement from
the same period last year, when the deficit was RON8.62bn (1.9% of GDP), lying well inside the IMF's target of RON7-8.8bn for the first
six months of 2012.
TABLE: FISCAL POLICY 17
Monetary Policy ... 17
Monetary Authorities To Remain Cautious In Spite Of Rising Inflation 19
In spite of rising inflation in Q312, the National Bank of Romania (NBR) held its benchmark interest rates at 5.25% on November 7
2012, highlighting the dilemma the bank faces trying to deal with weak domestic demand and inflated prices. With growth undermined
by eurozone uncertainty and increased political risk in the run up to the December 9 elections, we expect Romania to hold the policy
rate at its current level for the remainder of 2012 and 2013, but caution that a further spike in short-term inflationary pressures could put
pressure on the NBR to raise interest rates in early 2013.
TABLE: MONETARY POLICY ..19
Regional Fiscal 20
CEE Austerity Drives To Continue In 2013 ..20
We see little choice for Central and Eastern European countries but to persist with fiscal austerity measures to lower deficits below the
3% of GDP Maastricht limit – in spite of high and rising public discontent that has already seen a number of governments collapse.
However, beyond 2013 we anticipate the dialogue in the EU to shift away from austerity and towards growth-orientated policies as a
number of major EU economies seek to cushion the blow of deeply unpopular reforms.
TABLE: SOME MORE LIKELY TO HIT TARGETS THAN OTHERS ..20
Chapter 3: 10-Year Forecast 25
The Romanian Economy To 2021 ... 25
While Romania has significant growth potential over the next decade, there is a risk that the economy will not live up to its potential.
This is founded on its fragile and deteriorating institutional capacity and an overdependence on demand from weakened EU neighbours.
Rising domestic political uncertainty, combined with the persistent failure of eurozone leaders to reach an agreement on how to escape
the currency union's crisis have prompted us to lower our 10-year real GDP forecast from 3.8% to 3.4%. While this downgrade is
primarily a result of us lowering our 2012 and 2013 forecasts (see,'Growth Outlook Takes A Turn For The Worse '), it does reflect our
view that a sustainable growth rate of around 4.0% over the next decade will be increasingly hard to come by.
TABLE: ROMANIA LONG-TERM MACROECONOMIC FORECASTS ....25
Chapter 4: Business Environment 27
SWOT Analysis 27
BMI Business Environment Risk Ratings 27
Business Environment Outlook 28
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS 28
TABLE: BMI LEGAL FRAMEWORK RATING ....29
TABLE: LABOUR FORCE QUALITY ...30
Infrastructure ... 31
TABLE: EMERGING EUROPE – ANNUAL FDI INFLOWS 31
TABLE: TRADE AND INVESTMENT RATINGS .32
TABLE: TOP EXPORT DESTINATIONS .33
Chapter 5: Key Sectors .. 35
Oil & Gas .... 35
Competitive Landscape ..35
Oil And Gas Reserves ....38
TABLE: ROMANIA OIL & GAS – HISTORICAL DATA AND FORECASTS, 2009-2016 ... 39
Infrastructure .. 40
Residential/Non-Residential Construction And Social Infrastructure: 41
TABLE: ROMANIA RESIDENTIAL AND NON-RESIDENTIAL BUILDING INDUSTRY DATA, 2010-2017 . 41
TABLE: ROMANIA ENERGY AND UTILITIES INFRASTRUCTURE INDUSTRY DATA, 2010-2017 .... 43
TABLE: ROMANIA TRANSPORT INFRASTRUCTURE INDUSTRY DATA, 2010-2017 ... 44
Other Key Sectors 46
TABLE: AUTOS SECTOR KEY INDICATORS ...46
ROMANIA FOOD AND DRINK SECTOR KEY INDICATORS .46
ROMANIA PHARMA SECTOR KEY INDICATORS ..47
TABLE: TELECOMS SECTOR KEY INDICATORS ..47
TABLE: DEFENCE AND SECURITY SECTOR KEY INDICATORS ..48
TABLE: FREIGHT KEY INDICATORS .48
Chapter 6: BMI Global Assumptions .. 49
Global Outlook . 49
Downward Revisions, But Core Views Remain Unchanged .49
TABLE: GLOBAL ASSUMPTIONS 49
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST .50
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS .50
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 51

Accounting and Corporate Finance in Romania