Romania's economy to clutch 4.5% this year, rating agency Fitch estimates

Publish date: 26-03-2009
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Rating agency Fitch gauges Romania's economy will decrease 4.5 percent this year when the government will face difficulties in narrowing the budget gap below the level recorded in the previous year, a report published by the agency shows.

The budget deficit climbed to 4.9 percent of the gross domestic product (GDP) last year by Romanian standards and to 5.3 percent of the GDP according by European ones. The government promised the International Monetary Fund (IMF) and the European Commission (EC) to end the year with a public gap of 4.6 percent of the GDP, or 5.1 percent by European standards. 

Fitch estimate on the evolution of Romania's economy is more pessimistic than the one of IMF and EC, which foresee a 4 percent lower GDP this year.

Fitch analysts deem the impact of financial market turbulence is being reinforced by a slowdown in Romania's key trade and investment partners in the Eurozone.

The agency downgraded Romania from BBB' to 'BB+' in November 2008 and removed it from the investment grade category.

Expectations for Eurozone 2009 GDP growth have been revised down sharply and Romania's growth slowed to 2.9% percent in the last quarter, from 9.2% in the third one.

Pressure on the external finances amid reduced international investor risk appetite has driven a 21% depreciation of the national currency since the end of August last year. Also, the currency volatility poses risks for the banking system, as around 50% of system loans are denominated in foreign currency, Fitch says.

Fitch also deems the risks of implementation and execution of the IMF program will be significant. Romania's politicians may find it difficult to implement tough stability-oriented policies as the economy will be contracting for the first time in a decade, while presidential elections scheduled this year could increase pressure for populist policies.


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