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9% economic growth on paper, but negative ratings. Where does the paradox come from ?

The good evolution of the leu and exports was counterbalanced this year by economic overheating, which determined analysts to say that, in spite of growth on paper, Romania's economy had no better route against 2007, but similar. The external context got worse and the situation amplified the vulnerability of the country in the eyes of the rating agencies, this being a possible reason for which Standard&Poor's lowered the country rating.

On the other hand, the dynamics of exports was better than that of imports in 2008, which creates perspectives for the limitation of commercial deficit, important factor for the current account deficit.The economy succeeded in a spectacular growth which could reach 9% at the end of the year, a level considered by some analysts over potential ( estimated as 6%), the growth being fed by consumption mainly. The previous year inflation went up to 6.57% much over estimates, mainly due to the drought which led to the rising prices in agricultural produce.

2008 was a good agricultural year, which allowed starting with August the beginning of a disinflationist trend. Worries about budgetary deficit are important, in the context of the electoral year and many analysts count on a level for 2008 of over 3% which would mean a weaker evolution similar to 2007, when the level was 2.7% out of the GDP. Fluctuation on the monetary market was ample, but it did not reach the quota of 2007, which is a supplementary point in the chapter on financial stability. Taking into consideration all parameters, did Romania progress over the last year or not ? Or is it about regress, which would justify the lowering of the country rating by Standard &Poor's ?In general, the opinion of the analysts is that the evolution of the economy was similar in 2008 to 2007. The majority considers that the S&P decision was unfounded, but they say they could find it some justification in the present global situation. According to Ionut Dumitru, the head of research in Raiffeisen Bank Romania, 2008 was not a better year than 2007, the evolution was similar. « We had an economic growth absolutely contextual and over potential, supported by consumption. The salary increases were high enough. Consumption still grows, with an annual advance of 14% - 15%, Ionut Dumitru explains. Moreover, he considered, the expenditure made by the government could raise the budgetary deficit to over 3%. In his turn, Adrian Mitroi, member of the association for financial analysts CFA Romania, considers that, if we make a comparision between 2007 and 2008, the economic parameters are similar. He explained his opinion through the fact that it is almost impossible by aiming at one of the parameters not to have the economy affected in a different segment. " If they want the diminution of consumption then economic agents who lower their demand are hit, implicitly there is a diminution of economic growth, and if they encourage economic growth there could be a danger for inflation", he commented. The major difference between 2008 and 2007 is that the economic environment is more hostile at present" he said.

The strong points of the economy in 2008 As regards the inflation, it was good this year, the CFA representative considers. " On the other hand, among the priorities of the central bank for 2008 I think that inflation, through its good evolution, became a secondary objective. Firstly there was financial stability and current account deficit" Adrian Mitroi said. But Ionut Dumitru considered that missing the target shows that the evolution of the index could not be considered positive. " Inflation reached monthly values of 9%, and this year the central bank will miss the target again". In his turn, Radu Craciun, investment manager in Interamerican, draws the attention that it is likely for the annual average of inflation to be higher than in 2007, and this is due to the evolution of prices over the first seven months of the year. One strong point of the economy in 2008, Ionut Dumitru considered, was that this could be the evolution of the deficit of current account, which stabilized and even gives signs of being reduced. The CFA representative considers that the perspective of the deficit evolution, under the conditions where economies in the states who are the main partners of Romania slow down, this is also a slowing down of exports made by Romania to those states. Following the same logic there will be a slowing down of imports, which will be more reduced than the exports one, as we are still an economy based on food consumption mainly out of imports" he explained. Under the conditions where growth speed of exports will be overtaken by imports, there is a deepening of the commercial deficit associated with deficit of current account. Moreover, Mitroi said « if we consider the national currency, we see that we still have an exchange rate which stimulates imports. One leu for 3.7 lei/euro is a low exchange rate, but if we could talk of an exchange rate of 4 lei/euro, then surely this could be an attitude for export"If we had to identify a strong point of the economic evolution of 2008, Adrian Mitroi would stop on " the wonderful behavior of BNR" over this period, especially at the way in which they handled the issue of financial stability. The fluctuations of the exchange rate were more or less powerful " which is excellent, taking into consideration that this allows for predictability in business, stability of budgets, etc.", the CFA representative said. "I think that BNR is an excellent manager for situations of economic boom. We will need to see what they do when we deal with slowing down of the growth. Up to now it has been rather reticent when speaking about lowering of interests".

S&P decision could be justified through the present context of international crisis Taking into consideration the economic evolution of 2008, analysts consider the S&P decision regarding the lowering of country rating for Romania as unfounded. Mugur Isarescu, the central bank governor, stated several days ago that the analysis that S&P used to lower the country rating for Romania is full of errors and should be revised. « Arguments in their report are extremely shaky" Ionut Dumitru said. A proof that the analysis of the rating agency was superficial was that the reactions on the side of the other two agencies Fitch and Moody's mentioned they had no reasons to lower Romania's indicators to a level under investment grade. In his turn, Adrian Mitroi does not see in the S&P decision a revelant evaluation which justifies the lowering of the country rating.It draws the attention on some real deficits of the economy. "Let's look at the weak points they showed. We have a bad report loans- deposits at the level of banks, which could mean that we are still an economy which is not self-financing." Moreover, the lowering of the rating will mean rising prices for financing both for banks and for the economy. Radu Craciu, the manager of investments in Interamerican explained that the S&P decision took into consideration the risks to come over Romania from now on. "Under the conditions where we have to finance a current account deficit of 14% of the GDP, and external loans are more and more expensive, the lowering of the rating could be justified. S&P was wrong when they lowered the rating under investment grade, a level no other country in the EU has. A similar qualification to that of Hungary, for example, would be more appropriate", he explained. The lowering of the rating from one agency does not mean higher prices for financing for Romania. " Indeed, foreign investors who place money in Romania are attentive at S&P ratings and Moody's" Radu Craciun considers. " But the big banks, for example, have their own departments for the analysis on the basis of which they take investment decisions. Whichever could be the consequences, next year we should reduce the share of the current account deficit from the GDP by 2 or 3 percentage points, under the conditions where the level is big by rapport to other European states."

Sursa: http://www.actmedia.ro

Tags: inflation romania consumption considered could level lowering considers there under mitroi dumitru decision ionut economic account which analysts exports evolution growth where current economy imports deficit similar other rating country bnr euro

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