Citi counts on the revival of industry

The changes connected with internal consumption and the revival faster than anticipated of industry are the arguments which determine Citi analysts to maintain their projection of 7.1 per cent decline of the Romanian economy this year, according to a report published yesterday by the group and taken over by Money Channel.

"Although the macroeconomic data are weak, we expect a strengthening of the domestic industry, which could be favourable to resuming the growth in the second half of the year," Citi report reads.

Actually, the data of the National Institute of Statistics (INS) show that the activity in industry increased in the second quarter by 4.5 per cent against the previous quarter. The analysts of the group consider that the detailed data published by INS about the evolution of GDP in the second quarter sustain the estimate of a decline of the Romanian economy by 7.1 per cent in 2009. The report also shows that the data about GDP also back the estimates of the group regarding a future relaxation of the monetary policy of the central bank in the coming period.

"We expect the weak internal demand to give confidence to the central bank. The latter, alongside the financial package obtained from IMF and EU, and the adjustment of the foreign deficit more important than it had been estimated, could encourage BNR to relax in a more aggressive way the key interest rate in the period which remained until the end of the year. As a result, we expect a 0.50 per cent cut in September. We consider that until the end of the year BNR will reduce the key interest rate to 7.25 per cent, from 8.50 per cent now," the report also shows. INS has slightly revised downward the data regarding the economic contraction in the second quarter of this year, to 8.7 per cent against the same period of 2008, from -8.8 per cent in the signal estimate from August 13.

For the first half year, the economic decline remains at 7.6 per cent. The Government considers now an economic contraction of 8.5 per cent for the whole year 2009, GDP value being predicted at RON 497.3 bln (EUR 118.4 bln, at an average exchange rate estimated at RON 4.2/EUR). This week, the specialists of the rating agency Moody's stated that Romania is in a deep recession, that it will not overcome until 2010, but the long term perspectives remain positive, while analysts from Standard&Poor's estimated that the economic decline of Romania will be at 7.6 per cent.

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