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Romania Country Report - October, 2015

  • October 2015
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 31 pages

The report covers info as of October 27.



Romania's economy prepares for robust growth of above 3% this year and even more in 2016. But the fiscal slippage risks are rising as the government is endorsing measures with significant impact on budget. The EC and IMF expect the deficit to widen toward 3% of GDP next year and exceed this threshold in 2017 under current fiscal regime. The public debt is around 40% of GDP and the exposure to volatile external financing conditions is moderate.



Romania's macro-fiscal fundamentals are sound, and export growth has remained solid even in the context of weak external demand, the World Bank said in its economic outlook for the Europe and Central Asia region, Low Commodity Prices and Weak Currencies, released on October 26.



Romania's GDP will accelerate to 3.9% y/y in 2016, from 3.4% y/y in 2015, according to the International Monetary Fund's latest World Economic Outlook report, issued on October 6. The country's economic advance would thus be the highest among European economies in 2016, after being significantly above the average (1.9%) this year.



But the IMF also warned on fiscal slippage risks. Romania's adopted and intended policies will push the country's fiscal deficit close to 3% of GDP in 2016 and above that threshold in 2017, unless offsetting measures are identified or capital spending is again not fully carried out, the International Monetary Fund warned in the statement issued at the end of a staff visit in Romania.



Key Points

oRomania's government survives no-confidence vote

oS&P affirms Romania's sovereign rating, issues moderate growth forecast;

oRomania wants flexible arrangement with IMF, no fiscal constraints; IMF warns Romania's fiscal deficit is "set to rise significantly"

oIMF expects Romania's GDP to accelerate to 3.9% y/y in 2016; medium-term growth seen at 3.3%

oRomania revises Q2 GDP growth to 3.4%, from 3.3%; GDP increased by 3.8% y/y in H1

oRomania's industrial output 6% up y/y in August

oConstruction work in Romania up 10.8% y/y in August

oRomania's retail sales up 9.6% y/y in August on VAT rate cut for food

oRomania's consumer prices 0.26% up m/m in September

oRomanian wages up 9.8% y/y in August - in new post-recession record advance

oGeneral government posts 0.9%-of-GDP surplus in Jan-Sep ; Romania's Fiscal Council warns of costly fiscal slippage in medium term

oRomania drafts second budget revision, keeps deficit target at 1.85% of GDP

oRomania's current absorption of EU funds up only 2.2pp q/q to 57% at end-Sep

oPublic debt-to-GDP ratio down 0.8pp to 37.5% at end-August under ESA

oRomania issues EUR2bn worth of 10-year, 20-year Eurobonds

oRomania keeps policy interest rate at 1.75% amid medium-term inflationary pressures

oGrowth of mortgage loans in Romania accelerate to 14.3% y/y at end-Sep

oLoan-to-deposit ratio down to 92.2% in Romania at end-September on rising deposits

oRomania's C/A deficit halves y/y to EUR585mn in Jan-Aug

oRomania's trade gap widens by 94% y/y in August

Table Of Contents

Romania Country Report - October, 2015
EXECUTIVE SUMMARY5

Romania's 2019 euro adoption is unrealistic target - c-bank governor6

Romania in a good position to weather potential external shocks - WB6

Romania ranks 37th on WB's Doing Business ranking7

POLITICS7

Romania's government survives no-confidence vote7

RELATIONSHIP WITH IFIs8

SandP affirms Romania's sovereign rating, issues moderate growth forecast8

Moody's: growth prospects and robust public finance support Romania's sovereign rating9

Romania wants flexible arrangement with IMF, no fiscal constraints10

Romania's new agreement with IMF will be "signed by next government" - finance minister10

IMF warns Romania's fiscal deficit is "set to rise significantly"11

REAL SECTOR12

1. Corporate, structural reforms12

2. GDP, forecasts12

IMF expects Romania's GDP to accelerate to 3.9% y/y in 2016; medium-term growth seen at 3.3%12

Romania revises Q2 GDP growth to 3.4%, from 3.3%13

3. Industry, Constructions, Retail14

Romania's industrial output 6% up y/y in August14

Use of electricity in Romania's economy up 6.5% y/y in Jan-Aug15

Construction work in Romania up 10.8% y/y in August16

Romania's retail sales up 9.6% y/y in August on VAT rate cut for food17

4. Prices, Inflation17

Romania's consumer prices 0.26% up m/m in September17

Industrial production prices down 2.7% y/y in August18

5. Labour Market19

Romanian wages up 9.8% y/y in August - in new post-recession record advance19

Romania hikes wages in public education system by 15%19

FISCAL SECTOR20

Romania's Fiscal Council warns of costly fiscal slippage in medium term20

1. Budget Execution21

General government posts 0.9%-of-GDP surplus in Jan-Sep21

Romania drafts second budget revision, keeps deficit target at 1.85% of GDP22

2. Fiscal Policy23

Romania brings forward tax cut on dividends23

3. EU Funds23

Romania's current absorption of EU funds up only 2.2pp q/q to 57% at end-Sep23

3. Public Debt23

Public debt-to-GDP ratio down 0.8pp to 37.5% at end-August under ESA23

Romania issues EUR2bn worth of 10-year, 20-year Eurobonds24

FINANCIAL SECTOR25

Romania keeps policy interest rate at 1.75% amid medium-term inflationary pressures25

1.Bank Loan Quality26

Overdue loans in Romania down 15.6% y/y to EUR5.2bn at end-September26

2. LOANS, DEPOSITS26

Growth of mortgage loans in Romania accelerate to 14.3% y/y at end-Sep26

Loan-to-deposit ratio down to 92.2% in Romania at end-September on rising deposits27

3. CORPORATE28

Lawmakers fail to agree on foreign currency loan conversion bill28

EXTERNAL SECTOR28

1.Balance of Payments28

Romania's C/A deficit halves y/y to EUR585mn in Jan-Aug28

2. Foreign Trade29

Romania's trade gap widens by 94% y/y in August29

2.External Debt30

4. Forex Reserves31

Romania's foreign currency reserves down EUR203mn in September31





Table 1: Romania Selected Indicators [SandP forecast]9

Table 2: Industrial production [%, y/y]15

Table 3: Construction Works Volume Index [%, y/y]16

Table 4: Retail Sales Volume Index [% y/y]17

Table 5: Consumer, Producer Prices [%, y/y]18

Table 6: Wages, employment20

Table 7: General government budget [RON mn]22

Table 8: Romania's gross public [RON, EUR bn, % of GDP +breakdown]25

Table 9: Aggregate indicators for credit institutions [eop, unless otherwise indicated]26

Table 10: Romania CA balance Jan-Aug 2015 [BPM6]29

Table 11: Foreign trade [EUR mn]30

Table 12: External debt [EUR mn]30





Fig. 1: Seasonally adjusted GDP13

Fig. 2: Drivers of GDP growth, utilisation side [main elements]13

Fig. 3: Drivers of GDP growth, utilisation side [detailed]14

Fig. 4: Drivers of GDP growth, formation side14

Fig. 5: Industrial production [2010=100]14

Fig. 6: Industrial Production, seasonally and workday adjusted [2010=100]15

Fig. 7 Industrial Production, not adjusted, 12-m average y/y15

Fig. 8: Construction Works Index [2010=100]16

Fig. 9: Construction Works, seasonally and workday adjusted [2010=100]16

Fig. 10: Construction Works Volume Index, incl. 12-month average % y/y16

Fig. 11: Retail Sales Index, seas. adj. [2010=100]17

Fig. 12: Retail Sales Index, seas. adj. [2010=100]17

Fig. 13: Consumer Price Index [y/y]18

Fig. 14: PPI vs. CPI [y/y]18

Fig. 15: Industrial production price: domestic vs. external19

Fig. 16: Average net wage [2000=100]19

Fig. 17: Employment vs. unemployment20

Fig. 18: Romania's public debt [% of GDP]24

Fig. 19: Banking system's net profits [EUR]26

Fig. 20: NPL ratio26

Fig. 21: Overdue payments on bank loans26

Fig. 22: Stock of non-gov bank loans [EUR mn]27

Fig. 23: Non-government deposits27

Fig. 24: Foreign trade balance [EUR mn]30

Fig. 25: Rolling 12M exports [EUR mn]30

Fig. 26: Forex Reserves at BNR31


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