Romania Business Projection Industry Update Quarter 1 2012

  • December 2013
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views

Romania’s return to growth has so far been driven primarily by external
demand for Romanian exports, and while we expect the recovery
to broaden through coming quarters, increased headwinds from the
eurozone sovereign debt crisis have prompted us to revise down
our 2012 headline growth projection to 2.5%, from 3.3% previously.
With inflation now moderating substantially, we see scope for the
National Bank of Romania to loosen monetary policy in the months
ahead. We projection a 50 basis point cut in 2012, bringing the benchmark
policy rate to 5.50%, as growth concerns from increasing global
headwinds take hold.
While we projection Romania’s current account deficit to reach 3.9%
of Gross Domestic Product in 2011 and widen to 4.2% of Gross Domestic Product in 2012 as external demand
for the economy’s exports cools, we see growing risks from
the country’s inability to finance the deficit. With global risk aversion
elevated owing to the eurozone sovereign debt crisis, a narrowing
capital and financial account surplus suggests a return to the EU -IMF
assistance programme is now increasingly likely.

Major Projection Changes

We have modestly revised down our 2012 Gross Domestic Product growth projection to
2.5%, from 3.3% previously. Underpinning this revision is a deteriorating
outlook for Romanian exports owing to recession in the
eurozone. Domestic demand, however, should remain supportive
of economic expansion over the quarters ahead.
We now projection a 50 basis point cut in 2012, from our previous
forecast for a 25 basis point cut in H212. This will bring the benchmark
policy rate to 5.50% as growth concerns from increasing global
headwinds take hold.

Key Risks To Outlook

Downside Risk To Growth Projection : The eurozone sovereign debt
crisis presents a substantial risk to global and thereby Romanian
economic growth. Although our core scenario is for policymakers to
reluctantly take the action necessary to contain the crisis, the risk
exists that a disorderly outcome is realised, potentially catalysing a
renewed global downturn. Romania would be extremely vulnerable
under such a scenario.

Table Of Contents

Executive Summary........... 5
Core Views ............5

Major Projection Changes
.......5
Key Risks To Outlook ...........5
Chapter 1: Political Outlook............... 7
Industry SWOT Analysis .. 7
BMI Political Risk Ratings 7
Domestic Politics............... 8
Political Stability Prior To Election........8
The Romanian coalition government will withstand increased opposition pressure until the parliamentary election in November 2012. We
still expect the opposition to win the upcoming election and believe a new coalition government will respect the terms of the country’s
precautionary fund agreement with the EU /IMF. High levels of corruption will be key on the policy agenda, and the country’s external
perceptions will depend on improvements in this area.
TABLE: Political Overview.... 8
Long-Term Political Outlook............ 10
EU Membership Underpins Long-Term Stability.10
The strength and quality of Romania’s political institutions falls short relative to much of Europe, with significant challenges ahead
despite the progress made in the two decades since the fall of communism. However, we believe that Romania’s membership of the EU
will spur gradual political development over the years ahead and is very supportive of long-term political stability.
Chapter 2: Economic Outlook.......... 13
Industry SWOT Analysis 13
BMI Economic Risk Ratings............. 13
Economic Activity............ 14
Modest Slowdown Ahead....14
We projection Romanian real Gross Domestic Product growth of 2.1% in 2011 but have modestly revised down our 2012 projection to 2.5%, from 3.3%
previously. Underpinning this revision is a deteriorating outlook for Romanian exports on the back of recession in the eurozone.
Domestic demand, however, should remain supportive of economic expansion over the quarters ahead.
TABLE: ECONOMIC ACTIVITY.... 14
Balance Of Payments...... 15
Financing Difficulties Likely To Need Assistance...............15
While we projection Romania’s current account deficit to reach 3.9% of Gross Domestic Product in 2011 and widen to 4.2% of Gross Domestic Product in 2012 as external
demand for the economy’s exports cools, we see growing risks from the country’s inability to finance the deficit. With global risk aversion
elevated as a result of the eurozone sovereign debt crisis, a narrowing capital and financial account surplus suggests a return to the EU -
IMF assistance programme is now increasingly likely.
TABLE: CURRENT ACCOUNT .... 15
Fiscal Policy.... 17
Return To IMF Increasingly Likely.......17
We projection Romania’s budget deficit to fall below 3% of Gross Domestic Product by 2013 on the back of impressive fiscal austerity measures in recent
years, although slightly off the government’s goal to achieve this target in 2012. However, we see increasing financing difficulties on the
horizon, as heightened investor risk aversion and a rapidly deteriorating economic environment will keep buyers of Romanian sovereign
debt wary, increasing the likelihood of a return to the IMF for further assistance.
TABLE: FISCAL POLICY.............. 17
Monetary Policy................ 19
Further Rate Cuts Ahead.....19
The National Bank of Romania’s decision to cut its key policy rate by 25 basis points, to 6.00%, on November 2 2011 is in line with
our view that moderating inflation would trigger monetary easing. However, the sooner-than-expected cut signals a front-loaded, more
aggressive cutting cycle. We have therefore revised down our 2012 reference rate projection to 5.50%, from 5.75%.
TABLE: MONETARY POLICY..... 19
Regional Banking Segment 20
CEE Risks Rising20
Higher capital adequacy ratio requirements and sovereign mandates for banks to retrench in Western Europe are likely to feed through
to weaker funding to the Central and Eastern Europe (CEE ) region. We caution that there is a high risk of a credit crunch in CEE .
Chapter 3: 10-Year Projection ............ 23
The Romanian Economy To 2021.... 23
Economic Outlook Still Bright Over Long Term..23
Despite taking a heavy blow in 2009 on the back of the global economic downturn, we believe that the outlook for the Romanian
economy remains fairly bright over the longer term. In particular, we cite the limited private segment debt burden, flexible exchange rate
and large consumer industry as reasons underpinning our favourable assessment. We caution, however, that ongoing political fragility,
corruption, population decline and the eventual adoption of the euro could pose significant impediments to growth.
TABLE: LONG-TERM MACROECONOMIC FORECASTS ............. 23
Chapter 4: Business Environment... 25
Industry SWOT Analysis 25
BMI Business Environment Risk Ratings........ 25

Environment Overview Outlook....... 26
Institutions ...... 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS........ 26
TABLE: BMI LEGAL FRAMEWORK RATING............... 27
TABLE: LABOUR FORCE QUA LIT Y............ 28
Infrastructure .. 29
TABLE: EMERGING Euros OPE - ANNUA L FDI INFLOWS............. 29
TABLE: TRADE AND INVESTMENT RATINGS............. 30
Market Orientation ........... 31
TABLE: TOP EXPORT DESTINATIONS ....... 31
Operational Risk .............. 32
Chapter 5: Key Segments .... 33
Oil and Gas.......... 33
TABLE: Oil and Gas - Historical Data And Projections ... 36
Infrastructure... 38
TABLE: Construction and Infrastructure Market Data............ 39
Other Key Segments ............ 41
TABLE: Autos Segment Key Indicators............... 41
TABLE: Food and Drink Segment Key Indicators. 41
TABLE: Pharma Segment Key Indicators............ 42
TABLE: Telecoms Segment Key Indicators....... 42
TABLE: Defence and Security Segment Key Indicators.... 43
TABLE: Freight Key Indicators........... 43
Chapter 6: BMI World Assumptions................ 45
World Outlook. 45
Eurozone Break-Up Risks Rising .......45
TABLE: GLOBAL ASSUMPTIONS ................ 45
TABLE: DEVELOPE D STATES REAL Gross Domestic Product GROWTH FORECAST .............. 46
TABLE: REAL Gross Domestic Product GROWTH CONSENSUS FORECASTS ......... 46
TABLE: EMERGING MARKETS REAL Gross Domestic Product GROWTH FORECAST ............. 47

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