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Ernst&Young: Romania’s economy will contract until 2012

A GDP contraction by 3% this year followed by a 1% drop in 2011 may be possible. A revival of economic growth is foreseen for 2012.

It will happen because of intensified investments and consumption, but short term risks remain high , a report made by Ernst & Young shows. Problems have grown in Romania as a result of deep recession this year, a period when low consumption and reduced investments led to a 7% GDP drop, after a 7.4% increase recorded in 2008, according to the quarterly report Eurozone Forecast- Autumn 2010 made by Ernst & Young in collaboration with Oxford Economics.

Although in the second quarter of 2010 there was a 0.3% GDO increase compared to the previous quarter, it is still 0.5% lower than in the same period of 2009. Thus the increase interval is only a short interval before the new recession wave foreseen for the second half of the year.In fact, without taking into consideration the GDP increase of the second quarter, recession forces have already intensified being helped by the pressure exerted on family budgets by VAT increases and the growth of the consumption index by over 7% in 2010 to reach 8% by the end of the year.

Consumption expenses which had grown in the second half of 2009 dropped again by mid 2010 the increase of the decline rate in the second half of the year being possible. There is a foreseen reduction of consumption expenses by 5% this year, in addition to the sudden drop of 9.4% in 2009.The drop of domestic demand cumulated with the perspective of a small increase of the euro area will affect the recovery capacity of industrial output which began in the first quarter. Therefore on the background of excessive capacity at high level and the entrepreneurs' low confidence any recovery of capital investments could be delayed for the second half of 2011.

The consumers' confidence will remain at low level because of personnel cuts in the public sector according to the IMF accord and despite the increase of budget deficit target for 2010 at 7% of GDP against the initial target of 5.9%. Moreover, the government announced a new negotiation with IMF will be necessary when the loan accord of 20 billion euro expires in May 201.Refusing the issue of state bonds with profits higher than 7% the government is faced with several payment delays state entities to private companies, a thing which may generate an acute credit crisis at the end of the year, the report shows.

The uncertain perspective created by the fact that the recovery of export situations in the second quarter will be affected by a new weakening of the economy in the euro area, while incomes from fund transfers made by EU workers will undergo bigger pressures. A GDP contraction by 3% in 2010 and 1% in 2011 is possible. An economic growth is foreseen by mid 2012. It will be due to higher investments and consumption, but short term risks remain significantly high. Correlated with political uncertainties, the economic increase profile is lower than foreseen, which makes Romania have a budget deficit of 3% of GDP until 2015. Therefore, the objective of Romania entering the euro area will be possible five years from now or even later if a deeper crisis is present next year.

Sursa: http://www.actmedia.eu

Tags: increase second quarter ernst consumption young romania foreseen euro

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