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Romania Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views

The creation of a new technocratic government in November 2015does not change are fundamentally bullish growth outlook for Romania.The new administration will broadly adhere to fiscal and economicplans laid out by the previous Social Democratic Party (PSD)-ledgovernment, which will be supportive of growth.The opposition National Liberal Party (PNL) look odds on to win thenext election, due in late 2016.Romania’s current account deficit will expand over the coming years,as robust domestic demand underpins stronger import growth.Planned VAT cuts will ensure disinflationary pressures persist forlonger in Romania than regional peers. However, the central bankwill refrain from cutting rates below the current 1.75% level in 2016.Romania’s failure to secure another precautionary credit line fromthe IMF is unlikely to unnerve potential investors.Major Forecast ChangesWe upgraded our real GDP estimate for 2015 to 3.8%, from 3.6%previously, on the back of strong fixed investment growth.

Table Of Contents

Romania Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
EU Funds To Drive Improvement, But No Panacea8
Romania's notoriously poor EU fund absorption rate will improve notably in the years ahead, providing a modest boost to long-term
economic growth and convergence with more developed EU peers Nevertheless, institutional inefficiencies and Romania's nascent
level of development will prevent it repeating Poland's unrivalled success utilising EU funds
TABLE: POLITICAL OVERVIEW8
Long-Term Political Outlook 10
Progress Amidst Geopolitical Uncertainty10
The strength and quality of Romania's political institutions fall short relative to much of Europe, implying significant challenges ahead
despite the progress made since the fall of communism With membership of the euro still looking like a distant prospect, there is a risk
of relative institutional stagnation, which could jeopardise some of the improvements made over the last two decades
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Growth Outlook 14
Technocratic Government No Threat To Growth Story14
The formation of a new technocrat government in Romania does not change our very positive economic growth outlook for the country
If anything, it will improve the country's ability to attract overseas investment
GDP By Expenditure Outlook 16
TABLE: ECONOMIC GROWTH FORECASTS16
TABLE: PRIVATE CONSUMPTION FORECASTS16
TABLE: GOVERMENT EXPENDITURE FORECASTS17
TABLE: FIXED INVESTMENT FORECASTS17
TABLE: NET EXPORT FORECASTS17
External Trade And Investment 18
Import Surge To Continue18
Romania's current account deficit will expand over the coming years, as robust domestic demand underpins stronger import growth
Outlook On External Position 19
TABLE: TOP 5 EXPORTS19
TABLE: TOP 5 IMPORTS19
TABLE: CURRENT ACCOUNT20
TABLE: CAPITAL AND FINANCIAL ACCOUNT20
Fiscal Policy And Public Debt Outlook 21
IMF: Mixed Implications From Lack Of Deal21
Romania's failure to secure another precautionary credit line from the IMF is unlikely to unnerve potential investors In the absence of
IMF monitoring, ongoing fiscal expansion will be good for short-term growth
Structural Fiscal Position 23
TABLE: DEBT INDICATORS23
TABLE: FISCAL POLICY24
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES24
Monetary Policy 25
Central Bank Will Resist Temptation To Cut25
Planned VAT cuts will ensure that disinflationary pressures persist for longer in Romania than regional peers However, the central bank will refrain from cutting rates below the current 175% level in 2016, due to strong underlying domestic demand and the risks of the economy overheating with further cuts
Monetary Policy Framework 27
TABLE: MONETARY POLICY27
Banking Sector Update 28
Banking Sector In Solid Shape28
The outlook for Romania's banking sector will continue to improve in the years ahead Solid structural fundamentals will finally be accompanied by a recovery in bank lending and improved sector profitability over the coming quarters
TABLE: BANKING SECTOR RISK SNAPSHOT28
Currency Forecast31
RON: Gradual Weakening Ahead31
The Romanian leu will depreciate gradually against EUR over the coming quarters, although losses will be capped by continued ECB monetary expansion
TABLE: CURRENCY FORECAST31
Chapter 3: 10-Year Forecast33
The Romanian Economy To 202433
Major Untapped Growth Potential33
While Romania will struggle to return to pre-crisis growth rates over the next decade, we believe the country's economy has significant regional potential We forecast 10-year real average annual growth of 37%, with the country's competitive labour force likely to drive growth and attract investment over the next few years, despite ongoing political inefficiencies and the modest pace of the eurozone economic recovery
TABLE: LONG-TERM MACROECONOMIC FORECASTS33
Chapter 4: Operational Risk35
SWOT Analysis35
Operational Risk Index35
Operational Risk36
TABLE: OPERATIONAL RISK36
Education37
TABLE: EMERGING EUROPE - EDUCATION RISK38
TABLE: GRADUATES OF TERTIARY EDUCATION, 2007-201141
Government Intervention42
TABLE: EMERGING EUROPE - GOVERNMENT INTERVENTION RISK43
Chapter 5: BMI Global Macro Outlook47
Global Outlook47
Emerging Markets Bending, Not Breaking47
TABLE: GLOBAL ASSUMPTIONS47
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %48
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %48
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %49

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