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Romania Country Report - May, 2015

  • June 2015
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 35 pages

The report covers info as of June 24.



Romania's president, Klaus Iohannis, has appointed Gabriel Oprea - currently minister of interior and deputy prime minister - for the position of interim prime minister while Prime Minister Victor Ponta is on medical leave. Ponta extended its medical leave from June 16-19 to three to four weeks but he later decided to return as soon as possible after internal tensions occurred within the ruling coalition.

The political volatility might result in the country abandoning de facto de SBA with the IMF and the BoP assistance programme with the EC - due for completion in September.



Romania's parliament endorsed on June 24 the revised Fiscal Code - including the controversial lowering of the VAT rate from 24% to 19% and other tax rate cuts. As an effect, the fiscal deficit will widen next year to 2.9% of GDP, said Finance Minister Eugen Teodorovici. But he stressed that the gap would remain below the 3%-of-GDP benchmark and the country would thus avoid the excessive deficit procedures.



Key Points

oParliament endorses Fiscal Code, including 19% VAT rate [VAT rate for foodstuff was cut to 9% as of June 1, 2014]

oEuropean Commission, IMF concerned about 5pp cut of VAT rate

oIMF mission expected in Romania in mid-Jul

oGeneral government surplus stands at 0.85% of GDP in Jan-Apr

oStrong private consumption and investments contributed to robust 4.3% y/y Q1 GDP growth

oState forecasting body revises 2015 GDP growth up 0.5pp to 3.3%; World Bank revises projection on Romania's 2015 GDP growth to 3%

oElectricity consumption 3.9% down y/y in Jan-Apr

oRetail sales growth accelerates to 7.1% y/y in April

oNet wages 6.3% up y/y in April

oTreasury relies on short-term financing as cost of longer-term bonds rise

oRomania is ready to launch EUR1-1.5bn Eurobond, considers two issues this year

oRomania's public debt up 4.5% y/y, debt-to-GDP ratio stays at 38.4% at end-March

oRomania's banking system reports robust EUR187mn profits in Q1

oBanks' NPL ratio drops 0.3pp m/m and 7pp y/y, to 13.5% at end-April

oNew bank loans issued in Romania up 5.7% y/y, to EUR3.45bn in Jan-Apr

oRomania's C/A deficit narrows by 92% y/y to a mere EUR27mn in Jan-Apr

Table Of Contents

Romania Country Report - May, 2015
EXECUTIVE SUMMARY5

Robust growth despite political volatility6

POLITICS6

President Iohannis appoints interim prime minister6

POLITICAL OUTLOOK7

Prime Minister under investigation8

RELATIONSHIP WITH IFIs9

European Commission, IMF concerned about 5pp cut of VAT rate in Romania9

IMF mission expected in Romania in mid-Jul9

REAL SECTOR10

1. Corporate, structural reforms10

2. GDP, forecasts11

Strong private consumption and investments contributed to robust 4.3% y/y Q1 GDP growth in Romania11

Romania's net investments up 8.5% y/y in Q113

Romania state forecasting body revises 2015 GDP growth up 0.5pp to 3.3%14

World Bank revises projection on Romania's 2015 GDP growth to 3%15

Drought expected to hurt Romania's agriculture sector16

3. Industry, Constructions, Retail16

Industrial growth eases to 1.8% y/y in April16

Electricity consumption 3.9% down y/y in Jan-Apr17

Construction works 10.3% up y/y in April17

Retail sales growth accelerates to 7.1% y/y in April18

4. Prices, Inflation19

Romania's headline inflation accelerates to 1.16% y/y in May19

Romania's industrial prices drop by 2.75% y/y in April19

5. Labour Market21

Net wages 6.3% up y/y in April21

FISCAL SECTOR22

1. Budget Execution22

General government surplus stands at 0.85% of GDP in Jan-Apr22

2. Fiscal Policy23

Parliament endorses Fiscal Code, including 19% VAT rate23

3. EU Funds24

Treasury relies on short-term financing as cost of longer-term bonds rise24

3. Public Debt24

Romania is ready to launch EUR1-1.5bn Eurobond, considers two issues this year24

Romania's public debt up 4.5% y/y, debt-to-GDP ratio stays at 38.4% at end-March25

FINANCIAL SECTOR26

Romania's banking system reports robust EUR187mn profits in Q126

1.Bank Loan Quality.27

Banks' NPL ratio drops 0.3pp m/m and 7pp y/y, to 13.5% at end-April27

Overdue bank loans decrease by 17%, or EUR1bn ytd at end-April28

2. LOANS, DEPOSITS28

New bank loans issued in Romania up 5.7% y/y, to EUR3.45bn in Jan-Apr28

Bank loans 3.8% down y/y at end-April, currency substitution loses ground29

Bank deposit base keeps expanding, by 6.3% y/y at end-April30

3. CORPORATE31

Price paid by UniCredit for 45% stake in Romanian subsidiary might exceed EUR1bn31

Romanian bank BCR to sell EUR2bn NPL bundle within weeks - sources31

Insurance market up 7.4% y/y32

EXTERNAL SECTOR32

1.Balance of Payments32

Romania's C/A deficit narrows by 92% y/y in Jan-Apr32

2. Foreign Trade33

Romania's exports up 5.5% y/y in April33

2.External Debt34

4. Forex Reserves35

Central bank foreign exchange reserves up EUR126mn in May, to EUR30.1bn35


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