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UniCredit estimates economic growth of 0.4% in 2010

Romania will get out of recession in 2010 but UniCredit Tiriac Bank estimates an economic growth of only 0.4% of GDP, while the government says 1.3%.

Economic recovery will be marked by the deterioration of social conditions, which will limit consumption while resuming investments will become visible in the second part of the year.

The reduced domestic demand will continue to back the disinflation tendency and inflation rate will drop to 4.2% at the end of the year, according to UniCredit estimates.'The inflation rate will be in the interval foreseen by the central bank, which improves perspectives of the convergence process for interest rates toward the level of the euro area, in the perspective of adopting the single currency in 2015,' said Rozalia Pal, chief economist of UniCredti Tiriac Bank.BNR implemented a drop by 150 basic points of the monetary policy interest rate this year, while inter-banking interest rates dropped even lower than the key interest rate on the background of a rich liquidity in the market.

'The relation of monetary policy was backed by the appreciation of the leu and the disinflation process. We expect the next step to lead the interest rate at 6.25% after the next meeting of the Administration Board of the central bank, a level foreseen to remain constant until the end of 2010. However, a more ample movement is not excluded, having in view that a revitalization of the credit activity is not visible yet, and the appreciation of the leu is offering the best conditions for the relaxation of the monetary policy,' Pal explained. She added that BNR may decide on new reductions of minimal compulsory reserves in the second part of the year.

Romania registered a 1.08% of GDP deficit of the consolidated budget in the first months of 2010 and tends to reduce budget deficit from 7.4% in 2009 to 5.9% of GDP this year.'To succeed that, new steps should be made in adopting ample structural reforms for the reorganization of the public sector. Consequently social resistance toward those measures could grow in the following period,' the chief economist of Unicredit Bank said.

On the other hand, IMF representatives remain optimistic, considering the government can correct mistakes before the next evaluation visit at the end of April.'We see an important risk that budget deficit could grow on the background of social pressures, which are thwarted by anchoring public expenditure through the IMF accord and restructuring in the public sector. Consequently, our prognosis for budget deficit improved with additional adjustments in the following years<' Rozalia Pal added.

Fiscal evolution and foreign financing, conditioned by the stand-by accord with IMF and EU continue to be crucial for the credit perspective, UniCredit analysts say.

'The IMF assistance and the correction of the balance of payments brought stability in Romania, a fact reflected in the improvement of rating perspectives by Fitch and S&P from negative to stable in February and March, 'Pal said.Romania's foreign imbalance was corrected last year and the deficit dropped to 4.4% of GDP being covered 97% by direct foreign investments. For 2010 UniCredit foresees a level of the current account deficit of 5.1% of GDP.

'The appreciation of the leu proved sustainable and we reviewed the prognosis for the exchange rate, which will vary around 4.1 lei/euro this year, supported by the relatively high profits offered by the local market and the improvement of the investors' feeling toward emerging Europe,' the UniCredit economist explains.

Sursa: http://www.actmedia.eu

Tags: deficit unicredit interest economic estimates euro bnr

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