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Romania Country Report - March, 2015

  • April 2015
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 39 pages

The report covers info as of April 17.



The consensus expectations for Romania's medium-term growth are improving. S&P projects average 3% p.a. growth on medium run. But there remain some concerns - mainly related to the effects of government's planned major fiscal reforms. Furthermore, the improvement in investors' sentiment might have been driven to some extent by the anti-corruption actions and expected positive impact. The reasoning is in principle correct, but the judicial reforms still need to consolidate and to yield a chain of predictable in court. Other driver for positive expectations is the rise in domestic consumption and investments - which remain to be confirmed. Absorption of EU funds remains very disappointing.



Furthermore, the banking system is far from a fast recovery mode. Recent data reveal that the build-up of loans in households' and companies' portfolios remained in the negative area in Q4 last year despite more optimistic expectations. Also in the banking system, the balance sheet cleaning, which has advanced robustly since May to December last year, has surprisingly reversed in Jan-Feb.



The planned fiscal reforms are a source of uncertainty. The government cut the VAT rate for food to 9% [from standard 24%] effective June 2015 already. More rate cuts are expected in January, when the revised Fiscal Code is scheduled for enforcement. In principle, lower taxes could spur growth and there is room for such cuts provided tax evasion is reduced. The problem is that the tax collection has traditionally been particularly weak. The tax collection agency ANAF took visible steps to cut tax evasion, but actions in critical sectors such as alcohol, petroleum products trading, fruits and vegetables import and generally the imports in Constanta port, have not been visible yet.



Key Points



oHouseholds' stock of long-term loans [over 1yr maturity] picked up in Q4 - but the net flow of loans [transactions] remained in the negative area

oCooperation and Verification Mechanism is driving judicial reforms in Romania, Bulgaria - EC official

oOpposition's plans to oust government lose momentum

oGovernment reportedly discussed fiscal reforms with IMF in Washington, SBA remains in limbo

oStatistics office revises 2014 GDP growth 0.1pp down to 2.8%

oIMF forecasts Romania's growth at 2.7% in 2015

oS&P affirms Romania's rating, projects robust 3% p.a. growth in medium term

oIndustrial growth strengthens to 3.2% y/y in February

oConstruction works up 14.8% y/y in Jan-Feb from low base

oCPI inflation accelerates to 0.8% y/y in March, VAT rate cut effect expected

oNet wage up real 6% y/y in February; Romania's ILO unemployment down 0.6pp to 6.4% in February

oGovernment announces 0.33% of GDP budget surplus in Jan-Feb; Government's 0.2% of GDP surplus in Q1 supports VAT rate cut plans - PM Ponta

oFiscal Code bill seriously threatens fiscal stability - Fiscal Council

oRomania should reconsider size and timing of planned tax cuts - IMF

oNew minister admits Romania might absorb less EU funds than planned this year

oRomania not ready to enter ERM II in January 2016 - c-bank governor Isarescu

Table Of Contents

Romania Country Report - March, 2015
EXECUTIVE SUMMARY5

Firms, Households Have Not Resumed Borrowing Yet6

Households' stock of long-term loans [over 1yr maturity] picked up in Q4 - but the net flow of loans [transactions] remained in the negative area6

Companies' stock of long-term loans also increased in Q4 - but again, this was not an effect of net borrowing.6

Net borrowing remains negative in Romania, in Q46

POLITICS8

Cooperation and Verification Mechanism is driving judicial reforms in Romania, Bulgaria - EC official8

Opposition's plans to oust government lose momentum8

RELATIONSHIP WITH IFIs9

IMF concludes Article IV consultations with Romania9

Government reportedly discussed fiscal reforms with IMF in Washington, SBA remains in limbo9

EC concerned about Romania's new Fiscal Code - EC vice president Dombrovskis10

REAL SECTOR11

1. Corporate, structural reforms11

2. GDP, forecasts12

Statistics office revises 2014 GDP growth 0.1pp down to 2.8%12

IMF forecasts Romania's growth at 2.7% in 201514

SandP affirms Romania's rating, projects robust 3% p.a. growth in medium term15

3. Industry, Constructions, Retail16

Industrial growth strengthens to 3.2% y/y in February16

Electricity consumption down 4.1% y/y in Jan-Feb17

Construction works up 14.8% y/y in Jan-Feb from low base17

Construction market hits lowest post-crisis level in 2014 - Romanian construction association18

4. Prices, Inflation19

CPI inflation accelerates to 0.8% y/y in March, VAT rate cut effect expected19

Industrial prices down 1.7% y/y in February.20

5. Labour Market21

Net wage up real 6% y/y in February21

Romania's ILO unemployment down 0.6pp to 6.4% in February21

FISCAL SECTOR22

1. Budget Execution22

Government announces 0.33% of GDP budget surplus in Jan-Feb22

2. Fiscal Policy23

Government's 0.2% of GDP surplus in Q1 supports VAT rate cut plans - PM Ponta23

Romania to cut VAT on food to 9% from June24

Fiscal Code bill seriously threatens fiscal stability - Fiscal Council24

Former finance minister defends new Fiscal Code25

Romania should reconsider size and timing of planned tax cuts - IMF26

New minister admits Romania might absorb less EU funds than planned this year27

3. EU Funds27

3. Public Debt28

FINANCIAL SECTOR28

Central bank cuts policy rate by 25bp to 2%28

Romania not ready to enter ERM II in January 2016 - c-bank governor Isarescu29

1.Bank Loan Quality.30

Balance sheet cleaning reverses in January-February31

Overdue loans down 25% y/y to EUR5.7bn in Romania at end-Feb31

2. LOANS, DEPOSITS32

Gross bank loans down 3.7% y/y as of end-Feb as bad loans are written off32

Bank deposits up 5.7% y/y at end-Feb33

3. CORPORATE34

Banca Transilvania acquires Volksbank Romania34

Largest bank BCR to sell EUR1bn-1.4bn NPL bundle35

Court accepts payment in instalments from troubled Romanian insurer Astra35

EXTERNAL SECTOR36

1.Balance of Payments36

Romania posts 0.2% of GDP C/A surplus in January-February36

2. Foreign Trade37

Export growth decelerates to 1.2% y/y in February37

2.External Debt38

Romania's gross long-term external debt down 1.5% ytd to EUR74.6bn at end-Feb38

4. Forex Reserves39

Romania's forex reserves up EUR117mn in March on EU funds39





Table 1: GDP in Q4 and 2014, countribution of sectors and dynamics per sector12

Table 2: Industrial production [%, y/y]17

Table 3: Construction Works Volume Index [%, y/y]18

Table 4: Retail Sales Volume Index [% y/y]19

Table 5: Consumer, Producer Prices [%, y/y]20

Table 6: Wages, employment22

Table 7: General government budget [RON mn]23

Table 8: Romania's gross public debt under ESA [monthly, RON, EUR bn, % of GDP +breakdown]28

Table 9: BIS-reporting banks' exposure to individual emerging europe countries, inflows/outflows [USD mn, %]30

Table 10: Aggregate indicators for credit institutions [eop, unless otherwise indicated]30

Table 11: Romania CA balance Jan-Dec 2014 [BPM6]36

Table 12: Foreign trade [EUR mn]37

Table 13: External debt [EUR mn]38





Figure 1: Stock, flows and other elements of the households' financial accounts - long-term loans [liabilities] [RON mn]6

Figure 2: Stock, flows and other elements of the non-financial corporations' financial accounts - long-term loans [liabilities] [RON mn]6

Fig. 3: Seasonally adjusted GDP12

Fig. 4: Drivers of GDP growth, utilisation side [main elements]13

Fig. 5: Drivers of GDP growth, utilisation side [detailed]13

Fig. 6: Drivers of GDP growth, formation side14

Fig. 7: Industrial production [2010=100]16

Fig. 8: Industrial Production, seasonally and workday adjusted [2010=100]17

Fig. 9 Industrial Production, not adjusted, 12-m average y/y17

Fig. 10: Construction Works Index [2010=100]17

Fig. 11: Construction Works, seasonally and workday adjusted [2010=100]18

Fig. 12: Construction Works Volume Index, incl. 12-month average % y/y18

Fig. 15: Consumer Price Index [y/y]19

Fig. 16: PPI vs. CPI [y/y]20

Fig. 17: Industrial production price: domestic vs. external21

Fig. 18: Average net wage [2000=100]21

Fig. 19: Employment vs. unemployment22

Fig. 20: Romania's public debt [% of GDP]28

Fig. 21: Banking system's net profits [EUR]30

Fig. 22: NPL ratio31

Fig. 23: Off-balance sheet loans, loans due over 90 days [RON mn]31

Fig. 24: Overdue payments on bank loans32

Fig. 25: Stock of non-gov bank loans [EUR mn]32

Fig. 26: Non-government deposits33

Fig. 27: Foreign trade balance [EUR mn]38

Fig. 28: Rolling 12M exports [EUR mn]38

Fig. 29: Forex Reserves at BNR39


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