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Romania Country Report - April, 2015

  • May 2015
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 38 pages

The report covers info as of May 20.



The good news come from the labour market and growth. The twin surplus - positive balances of the C/A and government budget, will be short-lived, but significant for the sustainable drivers of the economic expansion. Moderately good news come from the banking market, where the balance sheet cleaning has stopped in Q1 - with indeed positive impact on banks' profitability. Nonetheless, the NPL share of the largest bank BCR remains close to one quarter (25%).



At the core of the discussions of the government with the IMF there is the revised Fiscal Code. Other important topics - such as the management in state owned companies and the restructuring of the mining and power companies CE Oltenia and CE Hunedoara are also high on the agenda.



The EC has illustrated in its Spring Forecast serious concerns related to the possible fiscal slippage generated by the revised Fiscal Code. The government has displayed budget surplus for Q1 and the revenues have increased by 12.6% on 21% y/y surge of VAT collection. However, the Fiscal Council explains that the rise of VAT collections was due to lower VAT returned to firms. The revised Fiscal Code is still under debates in Parliament and the lawmakers, encouraged by the government, are reportedly smoothing the tax rate cuts.



Key Points

oGDP up 4.3% y/y in Q1 - flash estimate

oEBRD revises up Romania's 2015 growth projection to 3%

oRomania's growth remains robust but fiscal reforms to push up deficit - EC Spring Forecast. EC asks Romania to take measures against expected fiscal slippage. Fiscal Council endorses VAT cut on food, but says is risky

oImports up 11.6% y/y in March, exceed pre-crisis peak; exports up 4.9% y/y

oIndustrial output rises 3.3% y/y in Q1

oElectricity consumption down 3.6% y/y in Q1, exports double

oConstruction works up 13.4% y/y in Q1

oRetail sales growth moderates to 3% y/y in Q1 on weaker non-food sales

oHeadline inflation eases to 0.65% y/y in April. Central bank revises downward inflation forecast to reflect VAT rate cut in June

oNet wages up real 6.3% y/y in Q1 in Romania, employment up 2.4% y/y;

oGovernment posts 0.7% of GDP surplus in Q1

oEU funds absorption rate up 1.1pp up to 54.22% at end-April

oCentral bank cuts interest rate by 25bp to 1.75% in unexpected move

oBad loans remain constant in Romania during Q1

oOverdue bank loans in Romania drop by 26% y/ at end-March

oRomania's bank loans down 3.4% y/y at end-March. Deposit base of Romanian banks up 5.9% y/y at end-March

oRomania posts EUR406mn, 0.3% of GDP C/A surplus in Q1

Table Of Contents

Romania Country Report - April, 2015
EXECUTIVE SUMMARY5

Focus Story6

BIS-reporting banks' gross exposure to Romania down 6.7% y/y to EUR31.07bn at end-20146

POLITICS7

Former Finance Minister Valcov implicates opposition politician in corruption scandal7

Development minister Dragnea resigns over electoral fraud scandal7

RELATIONSHIP WITH IFIs8

Romania aims to put SBA with IMF back on track...8

... and wants follow-up agreement with IMF - Finance Minister Teodorovici9

REAL SECTOR10

1. Corporate, structural reforms10

2. GDP, forecasts11

GDP up 4.3% y/y in Q1 - flash estimate11

Romania's growth remains robust but fiscal reforms to push up deficit - EC Spring Forecast11

EBRD revises up Romania's 2015 growth projection to 3%13

3. Industry, Constructions, Retail13

Industrial output rises 3.3% y/y in Q113

Electricity consumption down 3.6% y/y in Q1, exports double15

Primary energy resources used by Romania up 4.8% y/y in Q115

Construction works up 13.4% y/y in Q116

Retail sales growth moderates to 3% y/y in Q1 on weaker non-food sales16

Technology sales up 14.7% y/y in Q1 - GfK Temax17

4. Prices, Inflation18

Headline inflation eases to 0.65% y/y in April18

Central bank revises downward inflation forecast to reflect VAT rate cut in June18

PM Ponta urges retailers to cut shelf prices in line with VAT rate cut in June19

Industrial production prices up 0.4% m/m in March20

5. Labour Market21

Net wages up real 6.3% y/y in Q1 in Romania21

ILO unemployment down 0.5pp y/y to 6.5% in March21

FISCAL SECTOR22

1. Budget Execution22

Government posts 0.7% of GDP surplus in Q122

2. Fiscal Policy: REVISED FISCAL CODE23

EC asks Romania to take measures against expected fiscal slippage23

Fiscal Council endorses VAT cut on food, but says is risky24

3. EU Funds25

EU funds absorption rate up 1.1pp up to 54.22% at end-April25

3. Public Debt26

FINANCIAL SECTOR26

Central bank cuts interest rate by 25bp to 1.75% in unexpected move26

Central bank governor calls for euro adoption calendar to be reconsidered28

Romania's central bank instructs Greek-owned local banks to prevent rapid outflows28

Romanian lawmakers endorse personal insolvency bill28

Romanian banks post EUR135mn net profit in Q1 - daily29

1.Bank Loan Quality.30

Bad loans remain constant in Romania during Q130

Overdue bank loans in Romania drop by 26% y/ at end-March31

2. LOANS, DEPOSITS31

Romania's bank loans down 3.4% y/y at end-March31

Deposit base of Romanian banks up 5.9% y/y at end-March32

3. CORPORATE33

Erste Bank Group's Romanian BCR reports Q1 profits, NPLs still a problem33

BCR to sell EUR3.6bn NPL bundle34

Romanian financial supervisor considers bankruptcy of insurer Astra34

EXTERNAL SECTOR35

1.Balance of Payments35

Romania posts EUR406mn, 0.3% of GDP C/A surplus in Q135

2. Foreign Trade36

Imports up 11.6% y/y in March, exceed pre-crisis peak36

2.External Debt37

Gross external debt down 0.9% y/y to EUR92.9bn at end-Mar37

4. Forex Reserves38

Romanian c-bank's reserves fall EUR500mn in April to five-year low38


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