The Romanian economy is set to grow by 1.1 percent of GDP this year, helped by the renegotiation of an IMF agreement and a potential hike in EU funds absorption, according to a report of Erste Group on CEE markets and stocks.
The Erste analysts said the country has improved its fiscal balance since 2010, and estimates a budget deficit of 2.7 percent of GDP on ESA 95 for 2013.
“The Romanian economy will still be trailing behind its potential in 2013, with economic growth due to pick up slightly to 1.1 percent, highly sensitive to developments in the Euro zone, which absorbs around 55 percent of Romania’s exports,” said the report.
Analysts warn the slow growth pattern of the local economy will widen the current account deficit at 3.5 percent of GDP, while the foreign direct investments will be half of this.
With the FDI inflows at its lowest level in the region, Romania needs to reduce the arrears in order to unlock economic growth. The arrears represented 18.7 percent of GDP at the end of 2011, out of which 4.4 percent belonged to state-owned enterprises.
Authorities need to strengthen administrative capabilities of EU funds absorption. The country has drawn less than EUR 2 billion from the EUR 19 billion made available through to 2013. The country also has to improve the efficiency of domestic capital spending, according to analysts.
Romgaz listing makes the BSE emerging market
The lack of drivers for economic growth is making the Romanian equity market less attractive for foreign investors, although a handful of stocks performed well last year.
Erste analysts listed among the favorite stocks the Property Fund (FP), oil & gas company Petrom, lender Banca Transilvania, pharma producer Biofarm and the grid operator Transelectrica.
The government pledged to sell minority takes in several energy firms under an agreement with the IMF, but the privatization schedule has been delayed, either due to changes in the government configuration or bad market conditions.
The secondary public offering of the Transelectrica was the only notable event on the BSE last year. Erste considers that the listing of the state-owned gas producer Romgaz could bring the domestic stock exchange in the emerging market category.
The initial public offerings in Hidroelectrica, the insolvent hydropower producer and in Nuclearelectrica, the nuclear producers, should take place in 2015. Analysts said the success of these listings relies on increased profitability and the liberalization of the power market. Furthermore, al leas 60 percent of the output of these power producers needs to be sold on the wholesale market OPCOM to make them attractive for investors.
The daily turnover of the BSE will be lower than EUR 10 million this year which is an expression of an underdeveloped equity market compared to the size of the local economy, according to Erste.
The report reckons that foreign investors will continue to claim high discounts on Romanian stocks, due to the reduced “investability” of the domestic market.
The political risk seems to have leveled off this year after the USL coalition won a landslide victory in the December elections and formed a new government.
Erste sees a potential risk arising in the relationship between the socialists and liberals which form the USL, which may threaten the political stability of the country by 2016.