Moody's Sees Romanian GDP At -8.9% In '09

Publish date: 26-08-2009
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Romanian economy is likely to contract by 8.9% this year on falling domestic demand, while the first signs of recovery are not expected until mid next year, rating agency Moody's said Tuesday.

The rating agency revised down its forecast on Romanian economic decline to 8.9% this year from a 5.7% contraction predicted in July.

"The new forecast is -8.9%, but I must add that it is very difficult to forecast in the current environment. The import data is showing a rather dramatic decline in domestic demand, and certainly the Q2 growth estimates were worse than we expected," Moody's analyst Kenneth Orchard told Mediafax in an email.

"We assume that this trend will continue through the remainder of this year and into early 2010. The economy would then start to grow around the second half of 2010."

However, Romania might contradict the gloomy predictions for this year, especially if the top European economies manage "a robust recovery" in the second half, Moody's analyst said.

"The domestic recovery will likely depend on the governments actions over the next 1-2 years, plus the evolution of the health of the European banking system," Orchard said.

Moody's expects Romanian budget deficit will be larger than the recently revised target of 7.3% of the gross domestic product for this year, as the country has a "habit of missing budget deficit targets, and this year seems unlikely to be an exception."

The rating agency predicted a deficit gap of 7.7% of the GDP this year and of 5.6% in 2010.

In July, Moody's revised down its forecast on Romanian budget deficit to 6% of the GDP from the 5.1% budget cap initially estimated.

In order to meet this year's budget deficit target, the authorities in Bucharest would have to take immediate action to cut public spending, but an official plan has yet to be announced, Orchard said.

"It also seems unlikely that the government will significantly cut expenditures so close to the presidential election," Orchard said.

Romania and the International Monetary Fund recently agreed to a budget deficit of 7.3% of the GDP this year, nearly double the 4.6% cap established this spring.

In addition, Romania has to run a budget deficit below 6% of the GDP in 2010 and below 3% of the GDP in 2011.

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