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Capital Economics Report: Romania will not avoid recession even with IMF aid

Romanian economy will not avoid recession in 2009 although Romania will obtain financial support from IMF, a report of the British research institute Capital Economics shows.

Institute experts estimate a drop of Romania's GDP by 4% this year and 1% in 2010, while the exchange rate will reach even 5 lei/euro."The press shows that Romania might conclude an accord for a package of 25 billion dollars as IMF and EU financing. However, on a short term the measure could calm down the fears of a sudden slowing down and could invigorate Romanian markets, it does not eliminate the need of a fundamental depreciation for the leu. Moreover it will not prevent Romania from entering a deep recession this year," Capital Economics analysts say.

Most probably Romania will follow the example of Hungary and Latvia which besides IMF financing made appeal to the EBRD, the report published on Tuesday shows. The package, similar to the one received by Hungary will cover almost the whole short term debt due next year which should eliminate fears about Romania's full financial collapse , analysts say.Implicitly the package will invigorate financial markets, while Credit Default Swaps will drop after reaching record values.

Hungary's recent experience shows that in the present context any reaction of the market may have a short life.

 

Exchange rate of over 5 lei/euroOn the other hand, the leu is over appreciated and a support package will not modify the present situation."Indeed the national currency remained suspiciously stable during past turbulence, suggesting that BNR has intervened to quiet down fluctuations of the exchange rate," analysts say.

All these interventions could be forbidden in case of an accord with IMF, while the leu will drop by 15% and the exchange rate climb to over 5 lei/euro.

At the same time, the support package will not prevent Romania from entering a deep and long recession.IMF loans come with certain obligations, usually engagements for budget restrictions. In Romania's case they could be around 3% of GDP, the report shows. Analysts also say that Romania's chances of getting back to the same level of economic growth by means of the IMF aid are slim, in the context in which the recent rapid growth was generated by unsustainable crediting financed by foreign loans. That is the root of the country's present problems.

 

Sursa: http://www.actmedia.eu

Tags: shows package capital recession romania report economics euro bnr