Moody's: Economic growth of 2.3 pc for Romania in 2010

Publish date: 21-01-2010
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According to the Moody's analysts, the recession is approaching its end and Romania's economy will again start to grow in the second quarter of this year. According to them, Romania will register a GDP growth of 2.3 per cent, up from the previously forecast 1.2 per cent, Mediafax reports. The economic growth will start in April-June after six consecutive quarters of GDP contraction. 'The exports have stabilized and the local market's access to liquidity has improved in recent months, something that should come to the support of the economic recovery throughout this year,' a Moody's analysis reads.

Nevertheless, the financial ratings agency is expecting a 'sluggish' economy in the next few years, an economy influenced by the slowdown of the business dynamic on the large European markets but also by the slower credit growth.

Moody's anticipates that the budget deficit will fall to 6.3 per cent of GDP, that the current account deficit will drop to 3.5 per cent of GDP and that the annual inflation rate will drop to 3.5 per cent. On the other hand, according to Moody's, Romania's program on external financing from the IMF and the EU could end before its due time if the Government will manage to access enough financing from the market. Romania has a two-year stand-by agreement with the IMF for EUR 12.95 bln, an agreement that came into force in May last year.

The total package of external financing (from the IMF, the European Union, the World Bank and the European Bank for Reconstruction and Development) stands at EUR 19.95 bln. Until now Romania has received the first two tranches of its IMF loan, namely EUR 6.9 bln. The next two tranches with a total value of EUR 2.3 bln could be released at the end of the IMF evaluation. The IMF representatives will arrive today in Bucharest. The Government and the IMF are staking on an economic growth of 1.3 per cent this year, with one of the conditions included in the external financing agreement reached with the international financial institutions stipulating the reduction of the public deficit to 5.9 per cent of GDP. The National Bank of Romania (BNR) seeks to place the inflation rate within an interval of 2.5-4.5 per cent in 2010 and estimates that the annual inflation rate will stand at 2.6 per cent.

Analysts do not rule out early elections

The Government has enough support in Parliament in order to adopt measures in order to reduce the budget deficit and to implement the structural reforms, however the weak and divided nature of the governing coalition could limit the reforms, with early elections remaining a possibility, the Moody's analysis adds. 'The Presidential elections did not solve the instability that has affected the Romanian political stage in the last two years. The parties and the constituents remain highly divided in what concerns the best manner of tackling the economic policy. Nevertheless, the new Government has enough support in Parliament in order to reduce the public expenditures and to implement structural reforms that should facilitate the unblocking of the IMF and the EU loan in February or March. Early Parliamentary elections remain a possibility worth considering,' the Moody's specialists state.

The IMF and the European Commission have decided last autumn to block their loans to Romania because the evaluation of the stand-by agreement could not take place in the absence of a government. Moody's is the only important international rating agency that did not downgrade Romania from the investment grade to the 'junk' speculative grade. The agency gives Romania the Baa3 rating with 'stable' perspectives.

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