We forecast the Romanian central bank's policy rate will be lowered by
0.25bps to 5.00% in 2013, as the National Bank of Romania (NBR)
tries to balance weak domestic demand with a moderate uptick in
inflationary pressures. We expect headline consumer inflation to fall
just above the NBR’s target range of 2.0% and 4.0% in 2013, making
the bank wary of lowering rates any further than we have projected.
We anticipate the Romanian fiscal deficit to narrow to 1.6% of GDP
in 2013, but caution that the drive towards fiscal balancing will be
threatened by the ongoing crisis in the eurozone and domestic opposition
to fiscal austerity.
While we expect to see a victory for Victor Ponta’s Social-Liberal Union
(USL) in the December 9 legislative elections, we do not anticipate
any significant deviation from EU/IMF imposed fiscal consolidation
programmes. Instead, we expect to see an uptick in political risk as
the Romanian electorate becomes increasingly disillusioned by the
discrepancy between Ponta’s anti-austerity rhetoric and the fiscal
austerity measures being imposed by his government.
Major Forecast Changes
We have revised down our forecasts for Romanian real GDP growth
in 2013 and 2014 to 1.7% and 3.1, from previously 2.2% and 3.5%,
respectively. Leading indicators point to still-weak domestic and
external demand which will weigh on economic growth through H113.
Weak domestic demand and reasonably strong export growth in Q312
led us to revise our current account deficit forecast to 4.0% in 2013,
from 5.1% previously. While the country’s current account deficit appears
to be steady, its precarious international investment position
will pose risks to the balance of payments in H113.
Romania’s nominal fiscal deficit narrowed considerably in H112, persuading
us to amend our forecast to 1.6% of GDP in 2013, from 2.1%
previously. Increased tax collection and fiscal austerity measures
have contributed to the better-than-expected figures.
Risks To Outlook
A more pronounced slowdown in eurozone growth would likely have
a negative effect on Romania’s growth trajectory. Due to its high
degree of trade integration with eurozone countries, Romania’s economic
recovery remains dependent on external demand remaining
receptive to its exports.
While we believe a eurozone member state exit is unlikely in 2013,
such a scenario would see global trade and investment flows drop
considerably, which would further undermine growth in Romania.