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Romania, less prepared facing foreign volatility

The high fiscal deficit and the weak economic structures, such as the labour market rigidity, are the reasons underlined by international rating agencies.

Compared to other states in the region, Romania is less prepared to withstand the volatility of international markets, considering the high fiscal deficit and the weak economic structures, such as the labor market rigidity, the rating agencies,’ analysts say. ‘In certain ways, compared to most of the countries in the region, Romania is less well placed in order to withstand the volatility, given the fiscal deficit that reduces the room for maneuver in case the economic growth slows down, and the weak economic structures, such as the labor market rigidity,’ Andrew Coulquhoun, Director within Fitch Ratings, has stated for Mediafax. The Fitch analyst has shown that an impact of the international financial market turbulences has already made itself felt on the RON, the latter’s evolution becoming much more correlated with the global markets. He believes that in the case of an increased deterioration of the international markets’ conditions, the RON’s volatility would continue to rise, something that will have negative consequences on Romania’s macroeconomic stability. Marko Mrsnik, Standard&Poor’s (S&P) analyst, considers that the Romanian macroeconomic situation is perceived as having the largest vulnerabilities in the region. The external imbalances, registering a high level, along with the inflationary pressures stimulated by expansionary fiscal and income policies, signal the risk of economic overheating and the increase of the dependence on external financing. ‘The worsening of the crediting terms in the international markets could lead to a credit growth slow down and would consequently contribute to limiting the internal demand, especially if it is accompanied by appropriate fiscal and income policies,’ Mrsnik stated. In the long term, there is the risk that the international markets’ volatility could affect the perspectives of the real European economy, including the ones of the Romanian economy. Thus, first of all, the Romanian banks’ foreign shareholders could face more restrictive financing terms, something that will be reflected on credit expansion in Romanian subsidiaries. The credit growth slow down could nevertheless have a positive effect, from the point of view of the country rating, the Fitch analyst pointed out. Secondly, the slow down of economic growth in European Union states could affect the demand for Romanian exports, the Fitch analyst added. Feeling the effects of the international crisis by way of financial flows is an aspect that has also been underlined by Kenneth Orchard, Moody’s Investors Service analyst. ‘International banks are checked by liquidity problems and thus they are risk-weary. In recent years there have been significant financial flows towards Romania and it is possible that they will slow down. As liquidity decreases in Romania, the local banks will be compelled to slow the credit growth, thus affecting consumption and investments,’ Orchard pointed out. He added that the large commercial and real estate projects could be put on hold in case the necessary funds would no longer be available. Sursa: http://www.nineoclock.ro

Tags: growth analyst romanian could markets international volatility fiscal economic romania