Volksbank's outlook on Romania's economy

The representatives of Volksbank Romania are confident about Romania’s economic future and are expecting the flux of foreign investment to return in 2012. Last week, Volksbank, the 6th bank in Romania after assets value, launched its new branding campaign and a new line of banking services, making it more accessible for clients.

Melania Hancila, chief economist at Volksbank, told BR that Romania has enough buffers to boost the domestic economy in 2012, but the growth dynamics mainly depends on the willingness and effectiveness of authorities to speed up structural reforms in public sector and the wisdom in spending public revenues. Hancila pinpointed some possible growth resources for the Romanian economy: the relaxation of the monetary policy (notable cuts in mandatory reserve ratios and key rate), increased diplomatic efforts to support Romanian exporters to extend to BRICs and Arabian markets, huge available European non-refundable funds, important raw resources.

“Arabian states have expressed interest in our economy and the Chinese can also offer support in the infrastructure sector, as Romania is underdeveloped in this area”, explained the chief economist of Volksbank.

The set up of the PPP (Public Private Partnership) could represent a good opportunity to boost foreign investments in major infrastructure projects (road, maritime, energy) which will increase potential GDP growth and raise Romanian living standards on the long term. Since the economic crisis, it has increased the need for the state to play a more active role in attracting foreign investors, both on diplomatic ways, but also to improve qualitative shortcomings as high birocracy and corruption.

“The macroeconomic figures and perspectives still look bright for Romania, however I have to admit that both investors and households are disappointed by the manner the authorities administrated the crisis and the reduction in foreign financial flows towards Romania and sentiment indicators stand as proofs to this statement. Up to 2008, the economy was mostly self-driven, with the EU accession as main driver of GDP growth, but now the private sector needs state stimulus more than ever, therefore the economic governance of the state should radically improve”, explained Melania Hancila. I believe that profitable investments can be made in agriculture, infrastructure, energy sector, industry due to our large natural resources and skilled work-force. A better exploitation of natural resources can represent an extraordinary opportunity for Romania, however this process should be in the favour of whole population, by negotiating higher state revenues from the exploitation process, even if the state is just marginally involved.

Johann Lurf, the president of the Volksbank Directorate Romania, also stated that investors are coming back. “We have knowledge of investment projects in agriculture, and construction is starting again”, added Lurf, who is projecting that Romanians will focus more on savings and deposits in 2012, and to a lesser extent on lending.

The Romanian government should focus more on stimulating the economy in 2012, and refrain from awarding people on electoral basis. Reducing taxes, be it lowering the VAT with a few percentages or the contributions to the health insurance (CAS), might exert a positive impact private consumption, consolidating the economic recovery. The new GDP growth target of 2 % for 2012 is achievable, but not ambitious at all, as an emerging European country as Romania could grow at higher rates, however the reduction of budget deficit to 3 % of GDP next year looks ambitious enough during elections. Even if there has been made some progress in the past years, there is still a need for major measures for improving the effectiveness of public spending, as well as in collecting government revenues.

The social services should target the people that are really in need, while an increase in taxes on property, exploitation of natural resources, wealthy people could also bring additional resources to the budget. The chief economist at Volksbank warned that the middle class and seniors can’t bear another wave of austerity, as this would also impact consumption.

Ovidiu Posirca