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S&P: Romania’s economy will increase by 0.8% this year and by 2.5% in 2011

Romania's economy will increase this year by 0.8% mainly due to the extension of the foreign demand and by 2.5% in 2011, according to the estimates of the analysts of the agency Standard&Poor ( S&P) who consider that the frameword of economic growth will change to rely less on loans.

« The ratings offered to Romania balances our opinion regarding a potential of significant economic growth, a level of government debt and the reduction of the current account deficit with the difficulties we consider that the government faces to restructure the framework of economic growth and the solution to structural vulnerabilities in the public finances sector, as well as the foreign imbalances still high and the dependence of debt financing' a report of the financial evaluation agency says.

The S&P analysts consider that Romania's economy passed through a severe economic recession which started in 2009 mainly by the contraction of local demand caused by the reduction of credit, while the diminution of the foreign demand exaggerated the situation. « We estimate a slight coming back of the economy in 2010, mainly due to the coming back of foreign demand. As regards the domestic demand we estimate the indicator will stay at low level, due to the reduced consumption and investments, in the context where credit conditions are tough and the fiscal consolidation planned by the government' the report says.

At the same time, the analysts estimate that domestic demand, especially consumption will be kept at a low level due to the increase of unemployment rate from 4.4% in 2008 to almost 8% in 2009 and the estimates regarding the continuation of the trend on a short term. The agency estimates the average unemployment rate will advance from 8.1% last year to 9.7% in 2010 but it will be slightly reduced in 2011 at 9.5%.

S&P expects Romania's exports to resume their growth this year due to the improvement of the economic situation in the EU and other states and the competitiveness of the country after the depreciation of the leu as well as the effect of reduced basis. However, the analysts say that the degree of economy openness is relatively reduced by comparison to other states in the region, as exports represent only one third of the GDP and over two thirds are destined to the community area.

S&P says that the model of economic growth in many states in the region, including Romania is probably to change comparatively to the previous years to economic growth towards one based on less credit.

« Taking into consideration the toughening of credit conditions, we think it will continue on a short term, we anticipate that Romania and other states in the region will not record similar economic growth to those before the crisis up to the last years of the medium term horizon' according to the analysts of the rating agency.

The analysts consider that the reduced level of credit caused by the difficult economic conditions, will have a negative influence on the economic relaunching, taking into consideration that in the past the alert growth of GDP was supported by the rapid increase of loans.

« We believe this situation will contribute to the restructuring of the model of economic growth of Romania in a different direction than the consumption dependence' the report says.

The estimate of the financial evaluation agency regarding the growth of GDP this year is identical to the new IMF prognosis.

Standard& Poor revised, at the beginning of March from negative to stable on a long term for Romania, in foreign currency and local currency as a result of the programme supported by the budgetary reform and the probability that the government continues the meeting of IMF agreement.

Romania's ratings were confirmed at « BB+' and 'B' for loans in foreign currency, on a long term and short term, respectively at ' BBB-' and 'A-3' in local currency.

The leu will be stable, despite the persistence of the difficult economic environment

The leu will probably be stable, despite the persistence of difficult economic environment, due to the need for financing of the government which were reduced as compared to what was expected and due to the increase of BNR reserves combined with the positive reverse of capital flows, according to Standard&Poor analysts (S&P). 'Due to a gradual coming back of trust, pressure on the leu calmed down, leading to a slight appreciation, especially as a result of the closing of a period of political uncertainty. We believe the leu is probably stable, despite the persistence of the difficult economic environment' the S&P report shows .

The agency's analysts consider the possible appreciation of the leu will help to reduce the inflation but it would eliminate the benefits of the depreciation in the past.The inflation had a decreasing trend during the economic recession, although the annual rate of 4.7% recorded last year was situated over the target of 4.5% established by BNR. The central bank established for this year and for 2011 an inflation target of 3.5% with an interval of variation of plus/minus a percentage point.

'Taking into consideration the evolution of economic activity, we think the inflation rate will continue to drop, helped by the effect of basis, which would lead to the convergence with the interval targeted by the central bank' according to the S&P analysts. S&P, Moody's and Fitch are the main three international rating agencies.

Romania Public Debt Bound To Rise Further

Romania's public debt will continue its rapid advancement seen in the past two years and is likely to rise to 27.4% of the gross domestic product this year, from 21.8% of GDP in 2009, as a result of mounting deficits, Standard & Poor's said in a report.It said Romania's estimated general government debt for 2010 is lower than that of its peers in the region, such as Croatia (36.3%), Serbia (35.5%), and Hungary (80.4%), but is higher than that of Bulgaria (16%). 'Nevertheless, Romania's poor budgetary performance implies, in our view, that gross debt is still on the rise; according to our estimates, it is likely to reach about 32.5% of GDP by year-end 2011,' the report noted. S&P estimates Romanian public debt will reach 36.6% of GDP in 2013.

Sursa: http://www.actmedia.eu

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