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Romania Country Report - July , 2016

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

The report covers info as of July 29.



The risks of fiscal slippage and external balance deterioration, triggered by the fiscal innovations enacted last year and in 2016, have to materialised to some extent. The GDP expanded by 4.3% y/y in Q1, but the budget deficit risks exceeding 3% of GDP this year and the 12-months imports are rising at a rate that is double the growth of exports. The C/A balance already hit 1.5% of GDP in Jan-May - indeed partly due to the weak inflows from the EU budget, but also due to the deterioration of the trade with goods.



To reflect the developments, Fitch has affirmed Romania's long-term foreign currency (LTFC) rating at BBB-, but downgraded country's long term local currency (LTLC) rating to BBB- from BBB, the international rating agency said on July 22. The downgrade was made because Romania's public finance fundamentals are no longer stronger relative to the external finance fundamentals.



Key Points

oRomania confirms 4.3% y/y GDP growth in Q1, but revises downward capital formation

oHouseholds' monetary expenditure 10.6% up y/y in Q1, on 14.1% higher money income

oIndustrial production disappoints with 1.5% y/y rise in May, plunges 4% m/m

oConstruction works 8.9% up y/y in May as more non-residential projects launched

oRetail sales up 15.8% y/y in May

oAverage net wage growth accelerates to real 18.3% y/y in May

oMay ILO unemployment at lowest rate since June 2009

oGeneral government budget posts 0.5% of GDP deficit in H1 as revenues fall

oPublic debt to GDP ratio 0.4pp up y/y to 38.5% at end-May

oNPL ratio 7pp down y/y to 12.4% at end-May

oRomanian banks focus on retail segment in Jan-May

oHouseholds lose interest in long and short maturity deposits as real interest rates plummet

oAPS acquires EUR1.3bn NPL portfolios in Romania

oC/A deficit hits 1.5% of GDP in Jan-May

o12-month imports in Romania 9% up y/y, twice as fast as exports

oExport growth accelerates to 6.9% y/y in April, imports 9.8% up y/y

Table Of Contents

Romania Country Report - July , 2016
EXECUTIVE SUMMARY5

POLITICS6

Leader of Romanian's Social Democrats indicted6

Romania's PNL decides to run alone in the general elections7

UNPR and PMP parties to merge7

Nato summit endorses Romania's request for enhanced activity at Black Sea, President Iohannis says8

REAL SECTOR9

1. Corporate, structural reforms9

2. GDP, forecasts10

Fitch downgrades Romania's local debt on loose fiscal policy10

Romania confirms 4.3% y/y GDP growth in Q1, but revises downward capital formation11

Households' monetary expenditure 10.6% up y/y in Q1, on 14.1% higher money income13

3. Industry, Constructions, Retail14

Industrial production disappoints with 1.5% y/y rise in May, plunges 4% m/m14

Construction works 8.9% up y/y in May as more non-residential projects launched15

Real estate investment volumes increase 80% in first half of 201616

Retail sales up 15.8% y/y in May16

Households' services consumption 10.4% up y/y in May17

4. Prices, Inflation18

June headline inflation lags behind central bank's projection at minus 0.7% y/y18

Industrial prices up 0.3% m/m in May on higher external prices18

5. Labour Market19

Average net wage growth accelerates in May19

Salaries in Romanian private sector rise 10% in H1, study shows20

May ILO unemployment at lowest rate since June 200920

Registered unemployment edges down to 4.61% in May21

FISCAL SECTOR21

Government to make first budget revision21

1. Budget Execution22

General government budget posts 0.5% of GDP deficit in H1 as revenues fall22

2. Public Debt23

Public debt to GDP ratio 0.4pp up y/y to 38.5% at end-May23

FINANCIAL SECTOR25

Central bank maintains monetary policy rate25

1.Bank Loan Quality26

NPL ratio 7pp down y/y to 12.4% at end-May26

Share of overdue loans drops to 70-month low of 7.3% at end-June27

2. LOANS, DEPOSITS28

Stock of bank loans down in June and only 1.2% up y/y28

Romanian banks focus on retail segment in Jan-May29

Households lose interest in long and short maturity deposits as real interest rates plummet29

3. CORPORATE30

APS acquires EUR1.3bn NPL portfolios in Romania30

Insurance Guarantee Fund expected to pay damages of EUR139mn after Carpatica Asig's bankruptcy31

Net loss of Romanian insurers widens 7.5 times in 201531

EXTERNAL SECTOR32

1.Balance of Payments32

C/A deficit hits 1.5% of GDP in Jan-May32

2. Foreign Trade33

12-month imports in Romania 9% up y/y, twice as fast as exports33

2.External Debt34

External debt 3.1% down y/y at end-May, public external debt 7.5% up y/y35

3.Forex Reserves35

Forex reserves down EUR943mn in June on Eurobond payment35


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