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Romania Country Report - February, 2015

  • March 2015
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 41 pages

The report covers info as of March 20.



Romania's GDP increased by 2.9% in 2014, driven by the 4.6% y/y rise in domestic consumption that contributed 3.6pp to the overall performance. GDP will increase by 2.8% in 2015, slightly losing steam from the 2.9% expansion in 2014, but will gradually accelerate to 3% in 2016 and 3.5% in 2018, under the Winter Forecast released by state forecasting body CNP on February 23. Growth will be entirely driven by internal demand, particularly by the private consumption, the forecast says.



The drivers of Romania's GDP growth have changed visibly in 2014 from 2013. Households' consumption (private consumption) - and particularly households' direct consumption, has replaced net exports (external demand) as the main driver, latest quarterly data from the statistics office reveals. The key question is whether the domestic demand - for consumption and investments, will keep supporting the growth in the coming years, as forecasted under the baseline scenarios of the state forecasting body CNP and of the main international partners (EC, IMF).We have investigated the causes that generated the shift in order to answer this question.



Local currency bank lending has strengthened since mid-2014, end-December data revealed, and monetary circumstances supported this trend through January and February. The central bank cut the monetary policy interest rate by 125bp to 2.5% at the end of January and by another 25bp in February.



Key Points

oFitch affirms BBB-/stable rating for Romania: robust fundamentals but structural weaknesses

oRomania plans IPOs of Hidroelectrica, Constanta port and Bucharest airport this year - PM Ponta

oGDP up 2.9% y/y in 2014 driven by domestic consumption; GDP to grow by 2.8% in 2015; at least 3% p.a. in 2016-2018 - CNP forecast

oInvestments up 3% y/y in Q4 after seven-quarter decline

oRomania's industrial growth eases to 1.2% y/y in January

oEconomy uses 11% y/y less electricity in January, exports soars 75% y/y

oRetail sales up 6.3% y/y in January

oHeadline inflation remains at 0.4% y/y in February

oNet wages up real 6.6% y/y in January

oGovernment posts 0.56% of GDP surplus in January on lower expenditures and expects fiscal surplus of over 0.67% of GDP in Q1

oEU funds absorption rate remains disappointing in February

oGovernment is expected to enact the revised Fiscal Code on March 23.

oPublic debt hits 40% of GDP at end-2014

oBanks cut bad loans by [no more than] one quarter in eight months to January

oBank loans 3.8% down y/y at end-January, consumer loans 3% up m/m

oRomania posts 0.4% of GDP C/A surplus in January

Table Of Contents

Romania Country Report - February, 2015
EXECUTIVE SUMMARY5

Domestic demand substitutes net exports as main growth driver in 2014. Will this last?6

Private consumption replaces net exports as main growth driver in 2014.6

Gros fix capital formation makes positive contribution to growth after eight quarters6

POLITICS10

Romania's Finance Minister to resign after being targeted in corruption scandal10

RELATIONSHIP WITH IFIs10

Fitch affirms BBB-/stable rating for Romania: robust fundamentals but structural weaknesses10

REAL SECTOR11

1. Corporate, structural reforms11

2. GDP, forecasts12

GDP up 2.9% y/y in 2014 driven by domestic consumption12

GDP to grow by 2.8% in 2015; at least 3% p.a. in 2016-2018 - CNP forecast15

3. Industry, Constructions, Retail16

Romania's industrial growth eases to 1.2% y/y in January16

The trend of the revised seasonally adjusted industrial output looks pretty different after adjustment indicators were updated after January17

Primary energy use down 0.4% y/y on lower oil, gas intake17

Economy uses 11% y/y less electricity in January, exports soars 75% y/y18

Romania's construction index up 12.2% up y/y in January18

Retail sales up 6.3% y/y in January19

Sales of technical consumer goods up 13.7% y/y in 201420

4. Prices, Inflation20

Headline inflation remains at 0.4% y/y in February20

Industrial production price index up 2.1% y/y in January21

5. Labour Market22

Net wages up real 6.6% y/y in January22

Romania's ILO unemployment rate down 0.5pp to 6.5% in January22

Labour costs up 7.87% y/y in Q423

FISCAL SECTOR24

Age-related spending and exposure to financial sector risks are key fiscal planning issues- IMF24

1. Budget Execution24

Government posts 0.56% of GDP surplus in January on lower expenditures...24

... and expects fiscal surplus of over 0.67% of GDP in Q125

2. Fiscal Policy26

3. EU Funds26

EU funds absorption rate remains disappointing in February26

EC freezes EUR460mn of payments to Romania under human resources development programme27

3. Public Debt27

Romania prepares new Eurobond...27

... and expands external borrowing limit under MTN programme by EUR3bn to EUR18bn28

Public debt hits 40% of GDP at end-201428

FINANCIAL SECTOR29

CHF LOANS PROBLEM29

Government drafts bill to help CHF loan debtors...29

... and lawmakers prepare to endorse personal bankruptcy law in April30

1.Bank Loan Quality.31

Banks cut bad loans by [no more than] one quarter in eight months to January.31

2. LOANS, DEPOSITS33

Bank loans 3.8% down y/y at end-January, consumer loans 3% up m/m33

Bank deposit base up 7% y/y at end-December34

3. NON-BANK35

Insurance market shrinks by 0.34% y/y in 201435

Assets of private pension funds up 36.7% y/y to 3.05% of GDP35

4. CORPORATE36

Erste Group incurs substantial losses in Romania amid NPL reduction in 201436

Antitrust body allows Banca Transilvania to take over Volksbank in Romania37

State to launch development bank based on EximBank37

EXTERNAL SECTOR38

1.Balance of Payments38

Romania posts 0.4% of GDP C/A surplus in January38

2. Foreign Trade39

Exports up 6.4% y/y in January39

2.External Debt40

4. Forex Reserves40

Romania's foreign exchange reserves 3.7% down y/y to EUR30.48bn at end-February41

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