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IMF: Romania’s GDP will fall further

Romanian economy did not sink to what may be the recession's lowest point in the first quarter of the year and the gross domestic product (GDP) will further contract but at a slower pace and shift back to on green at the end of 2009, said the head of the IMF's mission chief for Romania, Jeffrey Franks.

Recession in Romania is most probably U-shaped, declared Franks, who sees a turnaround by the end of this year or the beginning of the next.

Governor of National Bank of Romania Mugur Isarescu said Thursday Romania's economy would still return positive despite the 6.4 percent plunge in the gross domestic product for the first three months. "I stick to the idea of an economic growth, not the same as in 2008, but rather under certain normality," said Isarescu. Romania reached the bottom of the V-shaped financial crisis in the first quarter and an 8-9 percent correction of the current account deficit is enough for this year, as a too sharp intervention could leave deep imprints on the economy, declared Isarescu.

He added that the adjustment of external deficit, which was "absolutely necessary", generated a better response from the economy than NBR had expected, but a complete avoidance of a slow down was impossible.The BNR governor said he expected the economy to perform better in the second quarter this year than Q2 2008.

Pressure on the exchange rate and the country risk cost will reduce following the agreement signed by foreign banking groups to keep the exposure in Romania and to provide additional capital to their subsidiaries, declared Franks.

Within few days the IMF will publish the letter of intent inked by the Romanian authorities for the external financing package, added Franks. The national economy contracted by 6.4 percent year-on-year in the first quarter of the year in real terms, according to the preliminary data published in mid May by the National Statistics Body INS.

IMF: 2009 will be a difficult year even with the IMF assistance

Unemployment will continue to rise in Romania in 2009 and early 2010, because this is an indicator with a delayed reaction to economic growth. When the economy decreases, unemployment reacts later, and when economy bounces back, the decline in unemployment is also delayed, IMF Mission Chief for Romania Jeffrey Franks said on Friday, on a visit to Bucharest as part of an ongoing mission to assess the developments in a stand-by arrangement between Romania and the IMF.

Franks said there are reason for satisfaction in the way the Romanian authorities reacted to achieving the objectives included in the arrangement, adding that the abrupt drop in Romania's Gross Domestic Product (GDP) in Q1, 2009 does not warrant a revision of conditions included in the arrangement, at least not for now, although the drop was more abrupt than economists were expecting.

A positive sign, he said, is that the largest nine foreign parent banks of banks incorporated in Romania agreed on Tuesday to adjust the solvency indicator from 8 to 10 percent for the 24 months of the arrangement. This will mean about 1 billion euro will be injected into the Romanian banking system in two installments, in September 30, 2009 and March 2010. This buffer capital is provided between the bleakest scenarios from the stress tests conducted by the IMF and the National Bank of Romania.

There is tight interdependence between Romania and European countries, which makes that results in countries like Austria depend on the results in Romania and the other way around. The effects of a forecasted drought on Romania could be a shock, but what is important is the social effects of the drought. Franks said that 2009 will be a difficult year even with the IMF assistance.

He added that the optimism he found in Romania and other countries is the result of economic downturn having slowed down, but growth has not resumed yet.Franks also argued that any pay rises should be considered against economic performance, and they will have to be discussed by the Romanian Government with the IMF. There is currently a weaker collection of Government revenues, but there is a possibility of the parameters agreed upon with the IMF in the arrangement to be released in the weeks ahead, being met.

 

Sursa: http://www.actmedia.eu

Tags: romania arrangement franks romanian economy euro bnr

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