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BCR: Austerity measures weigh on economic growth

Today, the National Institute of Statistics released the flash estimates for 3Q10 economic growth. Real GDP fell 0.7% q/q (seasonally-adjusted data) and 2.5% y/y. Our forecast was -0.7% q/q, while market consensus stood at -1.3% q/q.

No other details were released. In our opinion the poor performance of the Romanian economy from 3Q10 can be ascribed to the severe austerity measures implemented by the government this summer. A 5pp hike in VAT, a 25% cut in public wages, the reduction of some social allowances and government subsidies depressed households consumption. Gross fixed capital formation probably remained weak as investments in the construction sector came almost to a complete stop after the boom years.

We estimate positive q/q economic growth in 4Q10 because the effects of the austerity measures are likely to be absorbed rather quickly by the economy. As a result we see some chances for a slightly better performance in the entire year as compared to our baseline scenario of -2.1%. The NBR could resume the monetary policy easing cycle in 1H11 to support a fragile economic recovery. A new agreement with the IMF, lower inflationary pressures and a normalization of the political environment are prerequisite for this scenario.

Sursa: http://www.bcr.ro

Tags: growth economic measures austerity bcr

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