Moody's: Romania will register a difficult economic recession

Moody's anticipates Romania will register a difficult economic recession, but it considers that it should avoid the collapse thanks to the relatively low debt of the private sector and the reduced dependence on foreign trade.

"There is extensive proof that the economy slows down quickly now. The sectors directed towards export cut their production while the industry of constructions goes ever worse. The liquidity on the local market has somewhat improved vs. February, but the central bank still maintains the interest rates at a high level in order to support the currency," reads a Moody's report.

The experts of the rating agency anticipates that the economy of Romania will fall 4 per cent this year, but it will recover in 2010, when it registers an advance of 0.3 per cent. Romania had in 2008 an economic growth rate of 7.1 per cent.

The assets for the crediting sector in Romania include the economic and financial integration with EU, which supports the investments and the restructuring at microeconomic level, the low governmental debt and the support from the International Monetary Fund and the European Union, which reduce the vulnerabilities created by the macroeconomic imbalances.

On another hand, the challenges for the crediting sector of Romania include the control of the budgetary deficit, in the context of the economic recession and limited funding, the risks for the macroeconomic stability imposed by the worsening of the economic situation, the big foreign debt and the high current account deficit, and the interrupted process of structural reforms.

Moody's anticipates that the annual inflation rate will fall from 6.3 per cent last year to 4.9 per cent in 2009, and 3.7 per cent in 2010.

At the same time, the agency estimates that the budgetary deficit will decrease from 5.2 per cent of GDP in 2008 to 5.1 per cent this year, above the target set by IMF of 4.6 per cent of GDP, and 4 per cent of GDP next year. In connection with the governmental debt, Moody's considers that the index will gradually rise, from 16.3 per cent of GDP in 2008 to 22.5 per cent of GDP this year, and 29.3 per cent of GDP in 2010. On another hand, the experts of the agency predict the significant adjustment of the current account deficit at 7.1 per cent of GDP in 2009 and 6.8 per cent of GDP in 2010.

The report also shows that the financial solidity of the Government and the vulnerability to risks are at a medium level, as a result of the reduced governmental debts, of the weak budgetary policy, and of the problems connected with transition and the crisis of credits.

Moody's announced that it could reduce the rating of Romania further to a failure of the implementation of the agreement with IMF and EU, but it could modify upward its estimate if the institutional capacity strengthens enough to allow the more rigorous continuation of the reforms. The improvement of the efficiency of the fiscal policy, the growth of the financial stability of the Government could also support an upward modification of the ratio, according to the report.

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