Current account deficit: analysts send alarming signals

Bucharest - The current account deficit will continue to be the most sore macroeconomic point for Romania also in 2007, after last year, according to estimates, the indicator moved around nine per cent of GDP. The last to have sounded a strong pessimistic signal in regard to the evolution of the current account deficit are the analysts from Consensus Economics. The specialists of the organisation that rallies the macroeconomic predictions of several banks and international institutions have revised negatively the estimates, pointing for this year to a deficit of USD 14.6 bln, compared to USD 12.6 bln anticipated two months ago.

After the first 11 months of 2006, the current account deficit of Romania was EUR 8.85 bln, up 44.8 per cent over the one registered in the similar period from 2005. However, the foreign investments managed to cover, in the first 11 months of 2006, 93 per cent of the volume of the payment balance account deficit.

Trade deficit of USD 19.3 bln in 2007

The trade deficit had a determining influence on the current account balance, which slightly exceeded EUR 10 bln, which represents an increase by 48.1 per cent compared to the first 11 months from 2005. According to the central bank, the imports increased by 24.5 per cent, while the exports by 16.7 per cent. According to Consensus, the trade deficit of Romania will be USD 19.3 bln this year, and USD 22.4 bln next year.

Country rating might be at risk

At the same time, the rating agencies have begun to caution that they could revise negatively the country rating of Romania, if they notice an accelerated deepening of the current account deficit. “Although the political situation is agitated, I believe that this will be reflected in the country rating only if risks connected with the accelerated deepening of the current account appear, or if the foreign investors are chased away, which will affect the balance of payments and will worsen the long term development prospects of the country”, according to Andrew Colquhoun, director with Fitch Ratings.

Economic growth of over six pc

In the most recent report, Consensus grouped the estimates of ten banks and international institutions - Global Insight, EFG Eurobank, UniCredit Markets & Investment Banking, Deutsche Bank, Goldman Sachs, Economist Intelligence Unit (EIU), ING Financial Markets, Raiffeisen Zentralbank, DIW Berlin and ABN Amro Romania. The average of the estimates regarding the economic growth in 2007 is 6.1 per cent, over the level announced in the previous report, of 5.9 per cent. For 2008, the average of the estimates regarding GDP advance is however below six per cent. The estimates of the National Forecasting Commission (CNP) are rather more optimistic for 2007 and 2008, the economic growth rates being 6.5 per cent and respectively 6.3 per cent.

The economic growth in 2006 is estimated to be somewhere around eight per cent, after in 2005 the GDP had advanced a little over four per cent. Most of the international economic analysts regard positively the growth rates recorded by Romania, noting that the unsteady upward trend of the GDP may baffle the foreign investors when they draft their business plans in Romania. Moreover, the analysts have also warned over the risk of overheating of the Romanian economy, but the calmer growth rates anticipated for this year and 2008 seem to reduce such fear.

Inflation of 5.2 pc in 2007

According to Consensus analyses, the average growth of the consumer prices will be 5.2 per cent this year, below the level announced in the previous report. For 2008, the average inflation is anticipated at 4.7 per cent. In the autumn prediction, CNP has estimated an average inflation of five per cent this year and four per cent in 2008.

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