Romania to come out of recession this year, says UniCredit

Romania will emerge from recession this year, but its recovery will be marked by the decline in social conditions that will limit consumption, while the recovery of investments will become visible in the second part of this year. The prediction was made in the report CEE Quarterly, 2Q 2009 – A Two Speed Recovery in CEE, recently published by UniCredit Group. It also predicts 0.4 percent economic growth this year.

Fiscal sideslip remains one of the main risks for Romania, given the inflexibility of social expenses and the decrease in budgetary incomes, based on the weak performance of the local economy. UniCredit representatives estimate a current account deficit of 5.1 percent of GDP this year.

Another significant issue is that the National Bank of Romania (BNR) has cut the monetary policy interest rate by 150 basic points since the beginning of 2010. “We expect that the next step will take the interest rate to 6.25 percent, after the meeting of the BNR’s board of directors. This will remain stable until the end of 2010,” says UniCredit report.

The recovery of monetary policy was sustained by the local currency evaluation and the disinflation process. Analysts expect this situation to continue in the future, because of the limited pressure on inflation, negative production gap and potential pressures of RON appreciation, owing to the improvement in the current account balance.New decreases in minimal mandatory reserve rates are also likely in the second half of the year. Local currency appreciation has proved to be sustainable and UniCredit’s representatives reviewed their estimation of a slow decrease for the exchange rate, which they expect to oscillate around 4.1 RON per EUR this year.

According to UniCredit, consumption will still be held back by the social pressures brought about by both public and private restructuring. The lender’s representatives expect a slow recovery of 0.7 percent in consumption this year. A possible recovery in investment projects is also expected by the end of the year, with a slow decrease of 0.2 percent on this segment in 2010.

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Anda Dragan