New Market Report Now Available: Romania Business Forecast Report Q4 2013

From: Fast Market Research, Inc.
Published: Mon Oct 28 2013

We forecast real GDP in Romania to expand by an above-consensus 2.4% in 2013 and 2.8% in 2014, driven by robust exports and a moderate recovery in private consumption through H213.

The rebalancing of Romania's current account will continue over the next few quarters, as strong export performance and weak domestic demand stifles import growth, narrowing the country's trade deficit. However, we stress that the pace of the current account correction will slow over the coming quarters, as imports are supported by a more significant economic recovery in 2014.

Although Romania's fiscal deficit will narrow to 2.5% of GDP in 2013 and 2.3% in 2014, the pace of fiscal consolidation in the country is slowing. Steady revenue growth will be offset by a modest recovery in government spending, as the country's exit from the European Union's Excessive Deficit Procedure (EDP) allows the government to modestly relax its fiscal consolidation programme.

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The recent agreement of a new precautionary loan arrangement with the IMF will protect Romania against external shocks and increase the likelihood that the government will continue pursuing prudent macroeconomic policies over the next few years.

While we expect the threat of leu volatility to persist over the coming months, due to ongoing investor speculation over the direction of US quantitative easing (QE) tapering, we expect the currency to weaken towards the end of 2013 and into 2014.

Major Forecast Changes

We have revised our forecast for real GDP growth to 2.4% in 2013, from 1.7% previously, due to a robust net export story in the first six months of 2013, and our view that private consumption will show signs of a more significant recovery through H213.

In light of better-than-expected government revenues in the first few months of this year, we have revised our forecast for Romania's fiscal deficit to come in at 2.5% of GDP in 2013 and 2.3% in 2014, from 2.6% and 2.4% previously.

We have revised our forecasts for the current account deficit to come in at 1.3% of GDP in 2013 and -0.9% in 2014, from 3.6% and 3.7% previously, against the backdrop of recovering external demand in Romania's main trading partners and a slower-than-expected recovery in import demand in 2013.

We now forecast the interest rate to fall to 4.00% by the end of the year, from 4.50% previously, against the backdrop of increasingly dovish statements by National Bank of Romania (NBR) Governor Mugur Isarescu and easing inflation, which we have long expected to fall in H213.

Key Risk To Outlook

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Contact Name: Bill Thompson
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