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Romania Country Report - January, 2016

  • February 2016
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 31 pages

Summary

Table of Contents

The report covers info as of February 07.



Fitch forecasts Romania's economy will grow by close to 4% in 2016, well above the projected median growth rate of European and BBB peers. The government expects the growth rate to further accelerate in the coming years. But as the growth gains momentum, the analysts express increasingly more concerns related to the sustainability of the expansion. The GDP is "doped", central bank's chief economist Lazea said, while Fitch warned of fiscal risks as well. The European Commission sees the income policies in the budgetary sector as generating risks as well. Wages tend to rise more than productivity, the central bank also warned in its monetary policy comment.



The sustainability of the high growth rates expected for the coming years depend on the tax evasion, better public administration functioning and structural reforms - and eventually on the investments generated by better business environment. Such "soft" measures can easily shift upward the potential growth rate from 3%, where the central banks sees it at this moment.



Romania's GDP will accelerate to 4.2% this year from 3.6% last year, driven by wage increases and fiscal relaxation, according to the EC's Winter Forecast. In 2017, growth will ease to 3.7% as the effects of the fiscal stimulus fade. Romania's GDP increased by 3.6% y/y in Q3 2015 and by 3.7% y/y in January-September, the country's statistics office reported on January 15.



Romania's senate has deferred discussions of amendments to the controversial bill on mortgage loans within its expert committee by one week at the request of banks, economica.net reported on February 2.



Bankers have warned that if adopted the bill would result in more restrictive lending terms and in the termination of the state-guaranteed mortgage lending programme - which has been the main driver behind the recovery in bank lending recently.



Key Points

oFitch affirms Romania's ratings, warns of fiscal risks

oJudicial reform in Romania not yet irreversible - EC's CVM Report

oBank analysts say annual GDP growth in Romania could exceed 5% in 2016...

o... but c-bank chief economist says GDP growth is "doped"

oEC forecasts higher growth, but deeper deficits in Romania

oRomania confirms 3.7% GDP growth for Jan-Sept

oIndustrial output rises by 1.8% y/y in November, dragged down by extractive industry; rises 2.6% y/y in rolling 12M

oConstruction works in Romania up 9.4% y/y in Jan-Nov on low base in civil engineering

oInflation remains negative, minus 0.9% y/y in December, on VAT rate cut effects

oNet wages up 10% y/y in November

oGeneral budget deficit narrows by 10% y/y to under 1.5% of GDP in 2015

oRomania faces high debt sustainability risks, says EC's Fiscal Sustainability Report

oTreasury speaks of new euro-denominated debt on foreign, local markets

oCentral bank maintains monetary policy at Feb 5 meeting

oRomania's lawmakers defer talks on key bill on mortgage loans

oCentral bank tones down criticism of controversial mortgage loans bill

oStock of loans 3% up y/y in 2015, after 6.5% decline in previous two years

oBanks extend 29% y/y more new loans in 2015

oC/A deficit widens by 129% y/y to EUR1bn (0.625% of GDP)in Jan-Nov

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