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Analysis: Romania and recession: pessimists vs. optimists

The financial crisis might be followed by a wave of economic recession, whose first signs are felt in the EU. Possible influences on Romania divide specialists into two camps - those who believe we will register a severe economic correction and those who estimate that several businesses in EU will move their general quarters in Romania, which will support economic growth.

The pessimists are a majorityThe hard brake to crediting imposed by the central bank by new credit norms, doubled by liquidity problems in the banking sector and problems in the building sector are seen as the first signs of the crisis. The general secretary of the Businessmen's Association, Cristian Parvan, thinks the effects will come as a chain reaction on the relation crediting-business-constructions-retail.

"The building sector is already registering a slowing down on the background of crediting problems. Until now constructions have been the engine of Romania's economic growth. If constructions drop, related industry drop too, the same as in Spain, and crediting restrictions will affect not only the population, that is consumption, but also business, a more narrow financing bringing along a serious slowing down of economic growth," Parvan explained. Ionut Dumitru, the chief economist of Raiffeisen Bank Romania says that Romania's big problem is now the fact that we depend on EU, our main commercial partner. If we no longer have capital incomes on the background of problems in the European financial sector, then we have a big problem, since the exchange rate is affected. A fact which has already taken place," Dumitru warns.

"A recession in EU will be also felt in Romania. The delay of Voestapine investment, the reduction of production by half at Arcelor Mittal, the freezing of 4.4 billion euro projects by Austrians from Immofinanz, the downward rating registered by Erste Bank which owns BCR are just the first signs," analyst Cristian Dinulescu says.

"The economy of the euro area could enter recession in the last quarter, for the first time since the launch of the single European currency, ten years ago. Consumptions has drastically dropped, the European car industry got into crisis, the building sectors in Great Britain, Spain, Italy and Germany report drops. In these conditions, we can expect negative effects, especially since big companies in the Romanian economy are. Most of them, branches of foreign companies. If they have problems they will be certainly felt in Romania too," the analyst declared.

In the 11th hour the authorities have become aware of the danger, leaving aside declarations with election character."Because of the fact that several EU states have entered a stage of economic crisis and recession, and Romania has 70% of its exports directed to EU member states, it is possible to witness a certain slowing down of the volume of exports and implicitly of economic activity," premier Tariceanu recently declared. He added that the more prudent attitude of the banks, which request additional guarantees, may slow down the volume of Romanian and foreign investments.

Optimistic scenario: foreign investments will growEconomic recession may bring, beyond negative estimates, a wave of investors in Romanian economy, optimists say. On the background of the drop of developed economies, big companies might move their general quarters in countries like Romania, where costs are low and demand is still at high level.

Romania's main attraction is the underdeveloped economy.From constructions, where the housing deficit is over 1 million houses, to retail, where we continue to be below the European average and to the car sector, where the market is continuously rising, even at a slower rate, Romania has its advantages in attracting foreign investors, analysts say. The infusion of foreign capital may keep Romania far from the crisis."Romania is still attractive, even in the perspective of the crisis. It has registered increases in the retail segment, real estate, the business potential is good, according to Jorg Bitzer, country manager of Redevco developer.In retail, while at international level sales of big operators have reduced , on the background of price rises and consumption reduction, the life saver came from emerging countries such as Romania, Russia, Bulgaria and Poland,. On the background of massive investments, retailers' business exploded significantly, being from this point of view the 40.3% growing profit marked by Carrefour in the Romanian market in the first semester, compared to the first 6 months of 2007.

Adrian Iordache, the business manager of the consulting firm InterBIz, specialized in making sector analyses, estimates that in the building sector there is the highest growing potential despite the crisis. "To reach the minimum EU standards for the housing area, Romania should build about 820,000 houses, the equivalent of 90 million square meters. At present 32,000- 38,000 houses are built annually in Romania with a growing trend," Iordache said.

George Mucibabici, the president of Deloitte Romania, declared that, if Romania wants to avoid the economic crisis, it should lay accent of developing infrastructure.

"If we get into economic recession, Romania has the unique chance to balance the negative effects by works of public infrastructure which could engage many people and resources. In the case of these big infrastructure works there are beneficial effects on all channels. If the money established by EU for infrastructure are planned and spent in the next period, we could maintain a certain rate of economic growth in the context in which Europe and the US may enter economic recession," the president of Deloitte Romania recently said.

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Tags: romania sector business background foreign problems recession which crisis economic first car bcr euro

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