World Bank forecasts 1.5 percent growth for Romania this year

Romania’s economy is forecasted to grow by 1.5 percent of GDP this year, climbing to 3 percent next year, reveals the latest report on global economic prospects issued by the World Bank (WB). For 2011, the growth rate is estimated to have reached 2.2 percent.  

The current account deficit is estimated at 4.5 percent of GDP last year, and it will further deteriorate to 4.7 this year and 5.3 percent in 2013.

Romania is among the countries with large funding requirements making it vulnerable to a possible tightening of credit conditions, says the report. WB projects Romania’s external financing need will reach 18 percent of GDP this year. The debt repayments to be made this year total 13.5 percent of GDP.

European Bank’s Foreign Claims in Romania total almost 80 percent of GDP, exceeded only by Latvia, in Q2 2011. European banks operating in Romania relied on cross-border lending, thus the lending-to-deposit ratio is 127 percent.

WB says the rapid credit expansion coupled with slow growth, heightened risk aversion and restricted access to finance lead to increases in NPLs (non-performing loans) and provisioning, this being the case in Romania where the NPL ratio is 14.2 percent  

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Deleveraging in high income countries could directly affect Romania, as banks could cease funding new loans in daughter banks. WB says that the recent Austrian directive that limits future lending to subsidiaries could tighten financial conditions in Romania, where these banks are important players.  

Romania’s merchandise exports to the EU 27 were 71 percent of all exports, between 2008 and 2010, making it  extremely vulnerable to a sharp decline in EU demand.

WB says the global economy will expand by 2.5 percent this year and 3.1 percent in 2013. World trade will grow by 4.7 percent in 2012, further increasing to 6.8 percent in 2013.

Ovidiu Posirca