Fragile recovery for Romania in 2010 - 1 pc

Romania's economy is forecast to shrink by 8 per cent in 2009 after a strong expansion of 7.1 per cent in 2008. Growth of 1 per cent is expected in 2010, the EBRD Transition Report 2009, which will be published in full next month, points out, a press release informs.

"After years of robust growth, Romania is currently experiencing a significant economic slowdown, owing to declining exports, falling construction activities and slowing credit growth. However, International Financial Institutions have stepped in to help mitigate the impact of the crisis and Romania's medium-term outlook remains favourable with good potential for the resumption of growth once global conditions improve", said EBRD Lead Economist, Peter Sanfey.

The economies of central and eastern Europe are expected to contract by an average of 6.3 percent in 2009 following steep output declines in the first half of the year. Signs of positive growth in the third quarter of 2009 suggest that the recession is now bottoming out in many countries of the EBRD region.

However, any upturn in 2010 is likely to be fragile and patchy.

The report also points out there are likely to be significant cross-country differences in output growth in 2010, masked by an average growth rate for the region of about 2.5 percent.

"It is also clear that the social costs of the global economic crisis are only likely to be felt in earnest next year, when corporate bankruptcies and unemployment will continue to rise. Growth over the medium term in the EBRD region is also likely to be below the trend experienced over the last decade," said EBRD Chief Economist Erik Berglof.

Although year on year growth in 2010 is now projected to be higher than the 1-1/2 percent seen in the EBRD's May forecasts, this mostly reflects the recovery from a deeper than anticipated downturn in the first half of this year, rather than a more vigorous economy during 2010.

In some countries with hard currency pegs, the need to adjust real exchange rates through prices and wages could also weigh on aggregate demand. So could the need for further fiscal adjustment. This could slow the recovery in countries such as Bulgaria, Latvia, or Lithuania. The speed of recovery is particularly uncertain in Russia and Kazakhstan, which benefit from stronger fiscal positions, but at the same time suffer from weak banking systems and high non-performing loans and commodity dependence. In Hungary, which was hit particularly hard at the start of the crisis, the crisis has been contained thanks to strong international support as well as sound domestic policies.

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