World Bank: Romania's GDP to drop by 0.5 pc this year

Publish date: 11-06-2010
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Data presented by the World Bank in its World Economic Outlook 2010 report shows Romania and Latvia are the only countries in Europe and Central Asia to report economic contractions this year, Mediafax informs.

Romania's GDP will drop by 0.5 per cent this year according to the World Bank's prognosis which corresponds to the figure that the Government agreed on with its international partners following the IMF mission to Bucharest that took place in late April and early May, a mission that also included EU and World Bank representatives. Next year Romanian economy is set to report a growth of 3.6 per cent, with the World Bank estimating a GDP growth of 4.4 per cent in 2012. The international financial institution anticipates that the current account deficit will stand at 5 per cent of GDP each year from 2010 to 2012.

In what concerns Latvia, the World Bank foresees an economic contraction of 3.5 per cent this year after a drop of more than 18 per cent in 2009. For Europe and Central Asia the World Bank anticipates a real GDP recovery of 4.1 per cent this year after a contraction of 5.3 per cent in 2009, the severest contraction among the world's regions. "The recovery in the next four large economies is weak (Poland, Kazakhstan, Ukraine) or remains negative (Romania)," the World Bank report reads.

The same report points out that Romania is among the countries vulnerable to the euro zone's state debt crisis because its financial system is tightly interconnected with the financial systems of states that are deeply indebted and the Romanian economy attracted massive investments from Greece.

Although World Bank experts consider that a smooth and gradual solution to the euro zone crisis is the likeliest scenario, they are not ruling out the possibility of a "disorderly adjustment" that would have a severe impact both for the five developed European states that find themselves in difficulty because of their high debts (Greece, Spain, Portugal, Ireland and Italy) and for the region's developing economies. However, even in the case of the optimistic scenario the states in transition and the regions that have tight financial and economic ties with those five countries could face "important repercussions," the World Bank notes in its World Economic Outlook 2010 report.

Romania is 8th in top 10 default risks table

According to the data recently published by the Credit Market Analysis Company, a member of CME Group, the world's largest futures and options exchange, Romania is 8th among the world's top 10 economies at risk to default, Mediafax informs. Thus, Romania's credit default swaps reached 410.22 points, while its cumulative default probability stands at 24.76 per cent.

The credit default swaps measures the cost of hedging the debt's risk of default and at the same time determines the sovereign bond yield. Moreover, the CDS indicator also influences the cost of external financing for companies and banks. Romania is followed by Bulgaria (cumulative default probability of 381.43 points) and by Portugal (316 points). Venezuela tops the default risk table, followed by Argentina, Greece, Pakistan, Ukraine, Dubai and Iraq.

Economic analyst Ilie Serbanescu believes that "we are already bankrupt." "A country that uses loans to pay for its pensions and salaries is a bankrupt country. Cutting pensions and salaries is an expression of bankruptcy. This has nothing to do with who is in office, that's nonsense. The crux of the matter is that for over a year now Romania has been using loans to pay for its pensions and salaries, irrespective of whether those loans came from the IMF or from banks.

Romania is bankrupt," Serbanescu stated for The economic analyst considers that Romania's entry in the top 10 default risks table is a consequence of having had the economy destroyed in the last 20 years. "What we have now is not a real economy, it's an imitation," he underlined.

Financial advisor Bogdan Baltazar disagrees, stating that Romania has a low default risk. In his opinion, Romania's credit default swaps have been artificially hiked.

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