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Romania Country Report - January, 2015

  • February 2015
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 37 pages

The report covers info as of February 20.



Romania's GDP has increased by 2.9% in 2014, according to the first preliminary estimates. The growth was driven, during Jan-Sep, by actual final consumption - and not by the adjustments in the foreign trade (balance adjustments), as it was the case in the previous years. Detailed data for Q4 is not yet available, but the pattern seems to have remained the same. The exports and industrial output are expected to ease in the coming years, while the domestic demand for investments and consumption should keep driving the growth - under the baseline scenario drafted by the state forecasting body CNP in November. The government's budget for 2015 stipulates that most of the public investments would be financed from EU funds, which is rather risky given the weak absorption rate so far (including in January 2015).



In the financial sector, the central bank has continued the rate cut cycle but the credit expansion has not gained ground yet. The banks ended 2014 with record losses after they have partly cleaned their balance sheets. Nonetheless, there is still a large amount of bad loans on their assets side and the NPL ratio has remained above 10%.



In a last-minute move, the finance ministry came up with a draft for broad fiscal reform. It includes massive tax rate cuts to be enforced as of 2016-2017. This should however be received in the complicated political context. The main opposition party PNL, after winning the presidential elections in November, prepares to take full power. As explained so far, the reforms proposed by the finance ministry and adopted in a first reading by the cabinet of PM Victor Ponta, look unsustainable - or at least it lacks the set of measures aimed at securing better tax collection that would balance the direct negative of the tax cuts on the budget revenues.



Key Points

oIMF completes Article IV consultations with Romania with broadly positive views...

o...but stand-by arrangement remains in limbo

oRomania's GDP up 2.9% in 2014 - flash estimate; EBRD keeps 2015 GDP growth forecast for Romania at 2.8%

oIndustrial output 6.1% up y/y in 2014; eases to 2.4% y/y in Q4; Export growth slows in Q4, trade gap widens

oConstruction works down 6.7% y/y in 2014; up 2% y/y in Q4

oRetail sales up 7% in 2014 driven by non-food sales; fuel sales stagnate

oCPI inflation eases to 0.4% y/y in January

oWages up by real 4.5% y/y in Q4; ILO unemployment down 0.6pp to 6.4% in December

o2014 budget deficit down 21% y/y to 1.85% of GDP

oRomania's EU funds absorption rate remains disappointing in January

oGovernment considers 0.5% of GDP derogation from fiscal compact to finance investments... and considers broad fiscal reform to be enforced by January 2016; considers cutting VAT rate, excises before end-2015

oESA public debt up 1pp y/y to 39.4% of GDP at end-Nov, despite 3.4% of GDP (EUR5bn) rise in public debt

oCentral bank cuts monetary policy rate by 25bp to 2.25%

oRomania's banks post EUR1bn aggregated losses in 2014, mergers expected

oC/A gap narrows 40% y/y to EUR696mn, or 0.5% of GDP in 2014


Table Of Contents

Romania Country Report - January, 2015
EXECUTIVE SUMMARY5

POLITICS6

Judicial reforms in Romania show signs of sustainability - EC6

RELATIONSHIP WITH IFIs6

IMF completes Article IV consultations with Romania with broadly positive views...6

...but stand-by arrangement remains in limbo7

REAL SECTOR9

1. Corporate, structural reforms9

2. GDP, forecasts10

EBRD keeps 2015 GDP growth forecast for Romania at 2.8%10

Romania's GDP up 2.9% in 2014 - flash estimate10

In Q4, seasonally adjusted GDP hits highest pre-crisis level (of Q3'08)10

3. Industry, Constructions, Retail12

industrial output 6.1% up y/y in 201412

Industrial sales up by real 5% y/y in Q4, edge up 0.8% q/q13

Turnover of Romanian corporate service firms up by 4.7% y/y in Q4, growth in IT sector loses momentum13

Primary energy resources use up 2.4% y/y to 32.2bn tonnes of oil equivalent in 201414

Construction works down 6.7% y/y in 201415

Retail sales up 7% in 2014 driven by non-food sales; fuel sales stagnate16

Sales of technical consumer goods up 13.7% y/y in 201417

4. Prices, Inflation18

CPI inflation eases to 0.4% y/y in January18

Industrial producer prices 1.4% down y/y in December19

5. Labour Market20

Wages up by real 4.5% y/y in Q420

ILO unemployment down 0.6pp to 6.4% in December21

FISCAL SECTOR22

1. Budget Execution22

2014 budget deficit down 21% y/y to 1.85% of GDP22

Romania's EU funds absorption rate remains disappointing in January23

2. Fiscal Policy23

Government considers 0.5% of GDP derogation from fiscal compact to finance investments23

Government considers broad fiscal reform to be enforced by January 2016...24

... but considers cutting VAT rate, excises before end-2015.24

3. Public Debt25

ESA public debt up 1pp y/y to 39.4% of GDP at end-Nov, despite 3.4% of GDP (EUR5bn) rise in public debt.25

FINANCIAL SECTOR26

Central bank cuts monetary policy rate by 25bp to 2.25%26

CHF LOANS PROBLEM27

Romania's c-bank insists banks, clients should share 0.8%-of-GDP loss generated by CHF loans27

Romanian banks to lose EUR950mn by converting CHF loans at historic exchange rate - c-bank27

BIS-reporting banks reduce exposure to Romanian banks by $207mn in Q328

Romania's banks post EUR1bn aggregated losses in 2014, mergers expected29

1.Bank Loan Quality.29

Romanian banks resume balance sheet cleaning in December29

2. LOANS, DEPOSITS30

Bank loans down 3.1% y/y at end-201431

Deposit base in Romanian banks keeps rising robustly, by 7.5% y/y at end-201431

3. CORPORATE32

Banca Transilvania to take over Volksbank Romania "at a significant discount"32

EXTERNAL SECTOR33

1.Balance of Payments33

C/A gap narrows 40% y/y to EUR696mn, or 0.5% of GDP in 201433

2. Foreign Trade34

Romanian export growth slows in Q4, trade gap widens34

2.External Debt35

Romania's gross external debt down 3.3% y/y to EUR94.3bn, or 63% of GDP at end-201435

4. Forex Reserves37

Romania's foreign reserves down EUR1.6bn in January on external debt service37





Table 1: GDP in Jan-Sep, countribution of sectors and dynamics per sector11

Table 2: Industrial production [%, y/y]13

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

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

Table 5: Industrial Production Price Index, y/y20

Table 6: Consumer, Producer Prices [%, y/y]20

Table 7: Wages, employment21

Table 8: General government budget [RON mn]23

Table 9: Romania's gross public debt under ESA [monthly, RON, EUR bn, % of GDP +breakdown]26

Table 10: BIS-reporting banks' exposure to individual emerging europe countries, inflows/outflows [USD mn, %]28

Table 11: Aggregate indicators for credit institutions [eop, unless otherwise indicated]29

Table 12: Romania CA balance Jan-Dec 2014 [BPM6]34

Table 13: Foreign trade [EUR mn]35

Table 14: External debt [EUR mn]36





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 Volume Index, % y/y incl. 12-month average13

Fig. 8: Construction Works Index [2010=100]15

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 Volume Index, [2010=100]17

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

Fig. 14: PPI vs. CPI [y/y]19

Fig. 15: Industrial production price: domestic vs. external20

Fig. 16: Average net wage [2000=100]21

Fig. 17: Employment vs. unemployment21

Fig. 18: Romania's public debt [% of GDP]26

Fig. 20: Banking system's net profits [EUR]29

Fig. 21: NPL ratio29

Fig. 22: Off-balance sheet loans, loans due over 90 days [RON mn]30

Fig. 23: Overdue payments on bank loans30

Fig. 24: Stock of non-gov bank loans [EUR mn]31

Fig. 25: Non-government deposits32

Fig. 26: Primary Income outflows [rolling 12M, EUR mn]34

Fig. 27: Net flow of Foreign Direct Investments [rolling 12M EUR mn]34

Fig. 28: Foreign trade balance [EUR mn]35

Fig. 29: Rolling 12M exports [EUR mn]35

Fig. 30: FOB exports vs. imports [EUR mn]35

Fig. 31: Exports [EUR mn]35


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