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Romania Country Report - July , 2016

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

Description

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
- Romania confirms 4.3% y/y GDP growth in Q1, but revises downward capital formation
- Households’ monetary expenditure 10.6% up y/y in Q1, on 14.1% higher money income
- Industrial production disappoints with 1.5% y/y rise in May, plunges 4% m/m
- Construction works 8.9% up y/y in May as more non-residential projects launched
- Retail sales up 15.8% y/y in May
- Average net wage growth accelerates to real 18.3% y/y in May
- May ILO unemployment at lowest rate since June 2009
- General government budget posts 0.5% of GDP deficit in H1 as revenues fall
- Public debt to GDP ratio 0.4pp up y/y to 38.5% at end-May
- NPL ratio 7pp down y/y to 12.4% at end-May
- Romanian banks focus on retail segment in Jan-May
- Households lose interest in long and short maturity deposits as real interest rates plummet
- APS acquires €1.3bn NPL portfolios in Romania
- C/A deficit hits 1.5% of GDP in Jan-May
- 12-month imports in Romania 9% up y/y, twice as fast as exports
- Export growth accelerates to 6.9% y/y in April, imports 9.8% up y/y

Table Of Contents

Romania Country Report - July , 2016
Table of Contents

EXECUTIVE SUMMARY 5
POLITICS 6
Leader of Romanian's Social Democrats indicted 6
Romania's PNL decides to run alone in the general elections 7
UNPR and PMP parties to merge 7
Nato summit endorses Romania's request for enhanced activity at Black Sea, President Iohannis says 8
REAL SECTOR 9
1. Corporate, structural reforms 9
2. GDP, forecasts 10
Fitch downgrades Romania's local debt on loose fiscal policy 10
Romania confirms 4.3% y/y GDP growth in Q1, but revises downward capital formation 11
Households' monetary expenditure 10.6% up y/y in Q1, on 14.1% higher money income 13
3. Industry, Constructions, Retail 14
Industrial production disappoints with 1.5% y/y rise in May, plunges 4% m/m 14
Construction works 8.9% up y/y in May as more non-residential projects launched 15
Real estate investment volumes increase 80% in first half of 2016 16
Retail sales up 15.8% y/y in May 16
Households' services consumption 10.4% up y/y in May 17
4. Prices, Inflation 18
June headline inflation lags behind central bank's projection at minus 0.7% y/y 18
Industrial prices up 0.3% m/m in May on higher external prices 18
5. Labour Market 19
Average net wage growth accelerates in May 19
Salaries in Romanian private sector rise 10% in H1, study shows 20
May ILO unemployment at lowest rate since June 2009 20
Registered unemployment edges down to 4.61% in May 21
FISCAL SECTOR 21
Government to make first budget revision 21
1. Budget Execution 22
General government budget posts 0.5% of GDP deficit in H1 as revenues fall 22
2. Public Debt 23
Public debt to GDP ratio 0.4pp up y/y to 38.5% at end-May 23
FINANCIAL SECTOR 25
Central bank maintains monetary policy rate 25
1. Bank Loan Quality 26
NPL ratio 7pp down y/y to 12.4% at end-May 26
Share of overdue loans drops to 70-month low of 7.3% at end-June 27
2. LOANS, DEPOSITS 28
Stock of bank loans down in June and only 1.2% up y/y 28
Romanian banks focus on retail segment in Jan-May 29
Households lose interest in long and short maturity deposits as real interest rates plummet 29
3. CORPORATE 30
APS acquires €1.3bn NPL portfolios in Romania 30
Insurance Guarantee Fund expected to pay damages of €139mn after Carpatica Asig's bankruptcy 31
Net loss of Romanian insurers widens 7.5 times in 2015 31
EXTERNAL SECTOR 32
1. Balance of Payments 32
C/A deficit hits 1.5% of GDP in Jan-May 32
2. Foreign Trade 33
12-month imports in Romania 9% up y/y, twice as fast as exports 33
2. External Debt 34
External debt 3.1% down y/y at end-May, public external debt 7.5% up y/y 35
3. Forex Reserves 35
Forex reserves down €943mn in June on Eurobond payment 35

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