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Romania Business Forecast Report Q1 2015

  • December 2014
  • -
  • Business Monitor International
  • -
  • 50 pages

Core Views

Romania’s economic recovery will outperform most regional peers and move onto a firmer footing over the coming quarters. W e expect household and government spending to play an increasing large role driving growth, while weak eurozone demand limits exports’ ability to continue underpinning the recovery. W hile steady imports and overseas profit repatriation will widen Romania’s current account deficit in 2015 and 2016, a stable funding structure means this will not pose a threat to the country’s economic recovery. Subdued inflation, weak bank lending and declining demand from core eurozone economies will keep the National Bank of Romania in dovish mode in 2015. Romania’s government are likely to ease up on the pace of fiscal austerity in 2014 and 2015, but will remain within EU budget and public debt targets.

Major Forecast Changes

Softer demand from eurozone economies means we expect export growth to stutter over the coming quarters. Accordingly, we have revised down our forecasts for the current account to come in at 2.1% of GDP, from 1.9% previously. W e have revised-down our forecasts for the policy rate to 2.50% by end-2015, from 2.75% previously, due to lower than expected food price inflation.

Table Of Contents

Romania Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Victory Of Iohannis Suggests Greater Uncertainty 8
The shock victory of opposition candidate Klaus Iohannis in Romania's presidential election will prevent the ruling Social Democratic
Party (PSD) tightening its grip on power. Although this implies that further disputes between Prime Minister Victor Ponta and the
president are likely, Iohanni s' s pro-business stance means his win will be well received by investors.
tab le: Politica l overvie w 8
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 Index 13
Economic Activity 14
Moving Towards A Domestic-Driven Growth Model 14
Romania's economic recovery will outperform most of Emerging Europe in 2015 and 2016, as the country moves towards a more
domestic demand driven growth model. Ailing eurozone demand will prevent a return to pre-crisis growth rates.
tab le: Economic Activit y 14
Balance Of Payments 16
Few Risks From Wider Current Account Deficits 16
While steady imports and overseas profit repatriation will widen Romania's current ac count deficit in 2015 and 2016, a stable funding
structure means this will not pose a threat to the country's economic recovery.
tab le: Balance Of Payments 16
Fiscal Policy 18
Looser Fiscal Policy Poses Few Risks 18
The Romanian government will pursue a more expansionary fiscal stance in 2015 and 2016. This should help support real GDP growth,
without materially damaging the country's credit risk profile.
table: Fiscal Policy 18
Monetary Policy 19
Central Bank To Remain Dovish In 2015 19
Subdued inflation, weak bank lending and d eclining demand from core eurozone economies will keep the National Bank of Romania in
dov ish mode in 2015.
tab le: Monetar y Polic y 19
Exchange Rate Policy 21
Business Monitor International Ltd www.businessmonitor.com 3
Contents
RON: Stable Outlook For The Leu 21
The Romanian leu will remain one of the most resilient currencies in emerging Europe over the coming months, as portfolio investment
inflows into Romani an local debt markets rema in strong. The exchange rate will remain broadly stable over 2015 and 2016, as
demand for debt is offset by monetary easing and the country's deteriorating balance of payments position.
tab le: BMI Curenc y Forecast 21
Banking Sector 23
Banking Sector: On A More Solid Footing 23
Robust capital buffers and lower exposure to deleveraging parent banks means the Romanian banking secto r will move onto a firmer
footing in 2015. Bank profits will benefit from less capital provisioning as asset quality stabilises, alongside a pickup in household
loans.
Chapter 3: 10-Year Forecast 25
The Romanian Economy To 2023 25
Major Untapped Growth Potential 25
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 3.6%, 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.
tab le: Long -Term Macroeconomic Forecasts 25
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
tab le: Operationa l Risk 28
Transport Network 29
tab le: Transport Net work Risk 30
Economic Openness 33
tab le: Economic Openes 34
tab le: Top 5 Product Exported (USDmn ) 35
tab le: Top 5 Trade Partners Product Imports (USDmn ) 36
Chapter 5: Key Sectors 39
Infrastructure 39
table: Energy and Utilities Infrastructure Data 40
table: Energy and Utilities Infrastructure Data 41
Oil and Gas 43
table: Oil Production 44
table: Oil Production 44
table: Gas Production 45
table: Gas Production 45
Other Key Sectors 47
tab le: Pharma Sector Key Indicators 47
tab le: Telecoms Sector Key Indicators 47
tab le: Defence and Securit y Sector Key Indicators 47
tab le: Food and Drink Sector Key Indicators 48
tab le: Autos Sector Key Indicators 48
tab le: Freig ht Key Indicators 48
Chapter 6: BMI Global Assumptions 49
Global Outlook 49
Warning Signs Growing 49
tab le: Globa l Assumptions 49
tab le: Deve loped States , Rea l GDP Gro wtH , % 50
tab le: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 50
tab le: Emerging Markets , Rea l GDP Gro wth, % 51

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