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Romania Country Report - January, 2016

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

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

Table Of Contents

Romania Country Report - January, 2016
EXECUTIVE SUMMARY5

RELATIONSHIP WITH IFIs6

Fitch affirms Romania's ratings, warns of fiscal risks6

Judicial reform in Romania not yet irreversible - EC's CVM Report6

CoE praises anti-corruption drive in Romania, recommends better prevention6

POLITICS7

Government opts not to amend local election law7

REAL SECTOR7

1. Corporate, structural reforms7

2. GDP, forecasts8

Bank analysts say annual GDP growth in Romania could exceed 5% in 20168

... but c-bank chief economist says GDP growth is "doped"8

EC forecasts higher growth, but deeper deficits in Romania9

Romania confirms 3.7% GDP growth for Jan-Sept10

3. Industry, Constructions, Retail12

Construction works in Romania up 9.4% y/y in Jan-Nov on low base in civil engineering13

Retail sales 8.9% up y/y in 2015 after double-digit growth in H213

4. Prices, Inflation14

Inflation remains negative, minus 0.9% y/y in December, on VAT rate cut effects14

5. Labour Market15

Net wages in Romania up 10% y/y in November15

ILO unemployment rate stagnates at 6.7% in December16

FISCAL SECTOR17

1. Budget Execution17

General budget deficit narrows by 10% y/y to under 1.5% of GDP in 201517

2. Public Debt18

Romania faces high debt sustainability risks, says EC's Fiscal Sustainability Report18

Romania to issue new euro-denominated debt on foreign, local markets19

FINANCIAL SECTOR20

MONETARY POLICY20

Central bank maintains monetary policy at Feb 5 meeting20

BANK REGULATIONS20

Romania's lawmakers defer talks on key bill on mortgage loans20

Central bank tones down criticism of controversial mortgage loans bill21

1.Bank Loan Quality22

Overdue loans in Romania drop below 10% of total loans at end-201522

2. LOANS, DEPOSITS23

Stock of loans 3% up y/y in 2015, after 6.5% decline in previous two years23

Banks extend 29% y/y more new loans in 201523

3. CORPORATE25

Intesa Sanpaolo Romania sells EUR287mn NPL bundle at 90% discount25

Romania's BCR plans to sell NPL bundle worth over EUR1bn26

Nextebank holds 55% in Romanian Carpatica bank after two-step takeover26

Insurance market 8% up y/y in 2015, but remains in red27

EXTERNAL SECTOR27

1.Balance of Payments27

Romania's C/A deficit widens by 129% y/y to EUR1bn in Nov27

2. Foreign Trade28

Romania's trade gap widens by 81% y/y in November as imports rise 8.5% y/y28

Romania's exports up 1.8% y/y in November, fourth consecutive month of slow growth29

2.External Debt30

Romania's long-term external debt 5.6% down ytd at end-Nov 201530

3.Forex Reserves30





Table 1: EC Winter Forecast10

Table 2: Industrial production [%, y/y]12

Table 3: Construction Works Volume Index [%, y/y]13

Table 4: Retail Sales Volume Index [% y/y]14

Table 5: Consumer, Producer Prices [%, y/y]15

Table 6: Wages, employment17

Table 7: General government budget [RON mn]18

Table 8: Romania's gross public [RON, EUR bn, % of GDP +breakdown]20

Table 9: Romania CA balance Jan-No 2015 [BPM6]28

Table 10: External debt [EUR mn]30





Fig. 1: Seasonally adjusted GDP10

Fig. 2: Drivers of GDP growth, utilisation side [main elements]11

Fig. 3: Drivers of GDP growth, utilisation side [detailed]11

Fig. 4: Drivers of GDP growth, formation side12

Fig. 5: Industrial production [2010=100]12

Fig. 6: Industrial Production, seasonally and workday adjusted [2010=100]13

Fig. 7 Industrial Production, not adjusted, 12-m average y/y13

Fig. 8: Construction Works Index [2010=100]13

Fig. 9: Construction Works, seasonally and workday adjusted [2010=100]13

Fig. 10: Construction Works Volume Index, incl. 12-month average % y/y13

Fig. 11: Retail Sales Index, seas. adj. [2010=100]14

Fig. 12: Retail Sales Index, seas. adj. [2010=100]14

Fig. 13: Consumer Price Index [y/y]14

Fig. 14: PPI vs. CPI [y/y]15

Fig. 15: Industrial production price: domestic vs. external15

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

Fig. 17: Employment vs. unemployment16

Fig. 18: Romania's public debt [% of GDP]19

Fig. 19: Banking system's net profits [EUR]22

Fig. 20: NPL ratio22

Fig. 21: Overdue payments on bank loans23

Fig. 22: Stock of non-gov bank loans [EUR mn]23

Fig. 23: Non-government deposits25

Fig. 24: Foreign trade balance [EUR mn]29

Fig. 25: Rolling 12M exports [EUR mn]29

Fig. 26: Forex Reserves at BNR31


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