EC says Romania's recovery depends on IMF-agreed reforms

Publish date: 03-11-2009
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Romania is on a path of "gradual recovery," but its large deficits raise the country's "exposure to the global economic downturn," European Commission (EC) economists say. This diagnosis is included in the EC's autumn forecasts for 2009-2011.

After a deeper-than-expected recession, which will lead to an eight percent decline in growth by year-end, recovery is expected to begin in the first quarter of 2010. According to the EC, Q1 2010 will end with a 0.5 increase in gross domestic product (GDP). The report highlights the importance of the external financial assistance granted by the International Monetary Fund, the European Union, and the World Bank to support the efforts of Romanian authorities to keep the downturn in check. Applying the reforms included in the agreement signed with these institutions led to an increase in confidence in the economy. Also, the agreement eased access to lending, lowered the pressure on the leu, and reduced credit default swaps (CDS).

The first signs of economic rebound were visible as early as this year's second half, due to the rise in demand on foreign markets. This contributed to an increase in exports, support for domestic production, and a positive influence on private lending, which resumed growth in August, after five months of decline. The forecast assumes these trends will consolidate over the coming quarters.

Regarding the risks threatening the recovery process, the report indicates the possibility that eurozone developed economies, the main export markets for Romanian products, may not bounce back at the pace estimated at present. Referring to internal risks, specialists indicate that "the current political uncertainty could delay the implementation of measures aimed at stabilizing the economy." The unemployment rate is expected to rise to about nine percent in 2009, from 5.8 percent in 2008, but will slide to 8.5 percent in 2010. Wage pressures, which have diminished considerably in 2009, are expected to re-emerge next year, although to a lesser extent.

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