Today: September 25, 2016, 4:02 am

Romania's economy is forecast to report 2.8% growth in 2014 and 3.3% growth in 2015
Romania Business Forecast Report Q1 2014 - a new country guide report on 2014-03-17 07:20:04
We expect real GDP growth to come in at an above-consensus 2.8% in 2014 and 3.3% in 2015, as export growth is supported by Romania´s competitive labour force. Although private consumption will begin contributing more significantly to growth towards latter half of 2014, weak investment spending and fiscal consolidation will prevent growth from returning to pre-crisis levels for the foreseeable future.

The pace of fiscal consolidation in Romania is likely slow slightly in 2014, with the deficit forecast to narrow to 2.7% of GDP. While the government´s fiscal targets are likely to be narrowly missed in 2014, the country´s low public debt means that we don´t expect the deficit to pose any significant threats to Romania´s economic recovery Romania´s policy rate will be lowered by 50bps to 3.50% in 2014, as inflationary pressures continue to ease and domestic demand remains subdued. We forecast inflation to remain within the National Bank of Romania (NBR)´s target range and average 2.6% in 2014, although price pressures will begin to increase moderately later in the year.

Romania´s banking sector will continue shrinking in 2014 and 2015, as weak deposit growth and parent bank deleveraging restricts lending growth. Although rising NPLs will pose the biggest threat to the sectors overall health and profitability over the coming quarters, steady capital accumulation and Romania´s improving economy should ensure that the sector has adequate capital provisions going forward.

Although Romania´s improving economic outlook and a period of relative political stability will continue supporting investor sentiment towards domestic assets over the coming quarters, we expect the leu to continue heading along a modest depreciatory path in 2014.

We expect new taxes announced by the Romanian government to weigh on investor risk appetite in the country over the coming quarters, as well as the plan to privatise a number of state-owned industries. Fears over corruption and labour force migration will also continue undermining political stability, and the country´s attempts to join the EU´s Schengen area of passport-free travel.

We have revised Romania´s real GDP forecast for 2013 to 2.6%, as robust agricultural output helped growth surprise to the upside in Q313.

We have revised our forecasts for Romania´s fiscal shortfall to arrive at 2.4% in 2013, from 2.3% previously, against the back of higherthan- expected spending in the early parts of the year.

The main risk to our outlook for Romania is for a modest erosion in labour market costs over the next few years, with the government recently raising the minimum wage and as the country´s economy becomes more developed. In such a scenario, export growth could be undermined by a loss of competitiveness relative to regional peers, which would weigh on Romania´s overall economic growth potential.

A further risk to our outlook for Romania is for a worse than expect agricultural harvest in 2014. Romania´s improving growth outlook in 2013 was driven substantially by a bumper harvest as the agricultural sector recovered from a drought-induced harvest in 2012, and a poor harvest would have the potential to weigh substantially on export growth and the incomes of the 40% of Romanians who are currently employed in the sector.

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