CEE Quarterly no 2 - Glimmers of hope, but some tough times still ahead

Romania

Outlook

We look for a significant domestic demand led 4% contraction in GDP in 2009, with the flipside being a significant improvement in the current account deficit. A significant IMF led balance of payments support package reduces risks to the economy, though given downside risks to growth the market outlook remains challenging.

GDP growth slumps but financing solution breathes life into the economy

Romania's vulnerability and exposure to the global financial crisis became apparent in the sharply decelerating Q4 GDP. Strong corrections were registered in private consumption, slumping from 14.6% in the previous quarter to a 3.7% y-o-y contraction while investment remained positive at 2.8%, but was down significantly from 27.7% growth registered in the first three quarters. In Q1/09 household consumption remained under pressure on the back of tighter credit conditions, rising unemployment (5.3% in Feb from 4% avg 2008), less job security and significantly lower wage growth (13% relative to 24% y-o-y nominal growth in 2008).

Private consumption is expected to lose its role as a growth engine this year and to stay in negative territory throughout 2009. In line with global trends, January's depressed industrial production (-15% y-o-y) and record export contraction (-24% y-o-y) will persist in H1.

Moreover, the volume of construction works decelerated to 9% y-o-y in January from 30% y-o-y in 2008 and a further scale down is anticipated. The implementation of government infrastructure projects and strategic investment projects supported by EU funds will be crucial for the Romanian economy to return to growth in 2010.

For an in-depth report, please visit: http://mcir.doingbusiness.ro/en/banking-finance/banking/1/3-unicredit-tiriac-bank-sa.html