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Romania Country Report - May, 2016

  • June 2016
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 36 pages

The report covers info as of May 31.



The debt discharge law was promulgated, first debtors have submitted requests already. Banks consider challenhing the bill to Constitutional court - BancPost has already submitted a request in this regard.



Growth forecasts are particularly optimistic. Romania's GDP will accelerate to 4.2% this year from 3.8% last year, driven by surging domestic demand, according to EC's Spring Forecast. But the commission warned on widening budget deficit. The deficit should further deepen in 2017, to 3.4% of GDP, based on a no policy-change assumption, the EC projected. Romania's economy is on a cyclical upswing supported by strong domestic demand, but underlying inflation is expected to continue growing and the current account deficit to widen further because of import growth, the International Monetary Fund (IMF) cautioned on May 11 after concluding Article IV Consultations with the country.GDP is expected to rise by 4.2% this year before decelerating to 3.6% y/y in 2017, under the IMF's scenario.

The fiscal stimulus has significant impact. The retail sales index in Romania increased by 19% y/y in Q1, according to the statistics office.



Mixed figures in the real sector. The industrial production growth decelerated to 0.6% y/y in Q1, from 2.0% y/y in Q4 and 2.8% y/y in full 2015. This was the weakest performance since 2009. The construction volume index increased by 1% y/y in Q1, Romania's statistics office said on May 13.



The banking system improves profitability, but fails to spur financial intermediation. Romania's banking system achieved a 1.26% return on assets (ROA) in Q1, versus only 0.91% in Q1 last year and 1.24% in 2015, according to the central bank. Its average assets increased by 2.5% y/y to RON370bn (EUR82.4bn) in the quarter. Bank loans increased by 3% y/y at end-Apr, but the corporate loans were 1.5% down y/. NPL stagnates. The NPL ratio increased marginally by only 0.01pp q/q in Q1



Key Points

oLocal elections are scheduled for June 5

oFourth minister leaves Romanian technocratic government

oGDP 4.3% up y/y in Q1, flash estimate shows

oInflation hits minus 3.25% y/y in April; c-bank cuts 2016 yearend inflation forecast by 0.8pp to 0.6% y/y

oGeneral government budget balanced in Jan-Apr from 0.8% of GDP surplus last year

oPublic debt up 4.6% y/y to 38.1% of GDP at end-March

oBanking system posts EUR258mn profits in Q1, 38% up y/y

oQ1 C/A balance deteriorates to 0.9% of GDP deficit from surplus last year

oForeign trade gap widens 45% y/y to 6-yr peak in Q1

Table Of Contents

Romania Country Report - May, 2016
EXECUTIVE SUMMARY5

POLITICS6

Fourth minister leaves Romanian technocratic government6

Senate speaker Tariceanu probed for perjury6

Speaker of Chamber of Deputies most likely to be removed on June 77

REAL SECTOR8

1. Corporate, structural reforms8

2. GDP, forecasts8

GDP 4.3% up y/y in Q1, flash estimate shows8

EC keeps 2016 growth outlook, warns on risks stemming from debt discharge bill9

IMF expects 4.2% growth in Romania this year, but fiscal stimulus to push up inflation and C/A gap9

EBRD raises 2016 growth outlook to 4%10

3. Industry, Constructions, Retail12

Industrial output 0.6% up y/y in Q112

Romania reduces use of primary energy resources by 0.3% y/y uses 8.5% more electricity in Q113

Households' services consumption 15.6% up y/y in Q114

Construction works only 1% up y/y in Q114

Retail sales 19% up y/y in Q115

4. Prices, Inflation16

Inflation hits minus 3.25% y/y in April16

Industrial price inflation in Romania stagnates at minus 3.3% y/y in March17

Central bank cuts 2016 yearend inflation forecast by 0.8pp to 0.6% y/y18

5. Labour Market19

Net wages up real 15% y/y in first quarter19

ILO unemployment remains subdued in Romania amid tight labour market19

Registered unemployment 0.96pp down y/y to 4.71% in March20

FISCAL SECTOR21

1. Budget Execution21

General government budget balanced in Jan-Apr from 0.8% of GDP surplus last year21

Tax evasion identified in Jan-Apr estimated at EUR670mn22

2. Public Debt23

Public debt up 4.6% y/y to 38.1% of GDP at end-March23

FINANCIAL SECTOR24

Banking system posts EUR258mn profits in Q1, 38% up y/y24

MONETARY POLICY25

Romania's central bank maintains monetary policy rate25

1.Bank Loan Quality26

NPLs 6.7pp down y/y at 13.52% at end-March26

Overdue loans drop to five-year low27

2. LOANS, DEPOSITS28

Bank loans 3% up y/y at end-Apr, corporate loans 1.5% down y/y28

Kruk to buy Eurobank's Romanian NPL portfolio31

EXTERNAL SECTOR31

1.Balance of Payments31

Q1 C/A balance deteriorates to 0.9% of GDP deficit from surplus last year32

2. Foreign Trade33

Foreign trade gap widens 45% y/y to 6-yr peak in Q133

2.External Debt35

Gross external debt 4% down y/y to EUR89bn at end-March35

3.Forex Reserves36

Forex reserves of c-bank EUR1.38bn up y/y to EUR31.5bn at end-Apr36


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