Countries in the CEE (Central and Eastern Europe), including Romania, are in better economic health to downsize the effects of a contagion from the Euro Area, compared to the post-Lehman shock of 2008, reveals a report issued by Erste Group.
Erste specialists acknowledge that Romania and the Czech Republic are doing rather well in their fiscal consolidation process. Romania had a public debt level of 31 percent of GDP at end-2010, ranking among the least indebted countries. Only Bulgaria reported a lower gross public debt of 16 percent in the same period.
According to Juraj Kotian, Co-Head Macro/Fixed Income Research at Erste Group, Romania’s current account deficit shrank from almost 14 percent to below 5 percent of GDP, reducing new external financing needs for the country. The current account deficits represented the Achilles Heel of some CEE countries in the post-Lehman shock of 2011, stated Kotian in the report.
In the case of an external shock, the economic growth of CEE countries will be less impacted. The economies are operating now near or below potential, while in 2008; investment and economies were extremely high. This made them extremely vulnerable to extreme shocks, as was the case of the Lehman Brothers moment.
Romania is the achiever of the region, when it comes to budget deficit reductions. Erste specialists praise Romania’s effort on slashing its deficit from 9 percent of GDP in 2007 to an estimated 3.3 percent this year.
The output gap in Romania was 9.9 percent of the potential output in 2008 and it is forecasted to reach a negative 4.4 percent this year.
Erste specialist highlight that in many CEE countries investments and net exports were the only contributor to GDP growth, while household and government stalled or even contracted.
The report concludes that the GDP growth of CEE8 countries is to slow down next year to an average 2.6 percent y/y. The Economic growth in the Euro Area will be 0.9 percent, with further downside potential