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Analysis: Industrial production could drop by 10 – 20% next year

The industrial production of Romania could be reduced next year by 10 - 20% based on economic recession, estimates the General Union of Industrialists in Romania. The biggest problems are in textiles, metallurgie and auto parts industry. The crisis of liquidity and an steep drop in demand raise problems in the Romanian economy, stated the chairman of the General Union of Industrialists in Romania, Ioan Cezar Coraci.

"The biggest problems are with companies where they work for export. On the basis of the lowering of the demand on foreign markets, especially in the European Union, which is our main commercial partner, there are tens of companies which had to reduce their production not to accumulate stocks" Coraci said. "The biggest problems are in textile, metallurgic and auto part industries" the UGIR chairman said. "If EU goes into recession, the statistics showing already a drop in all economic indices, we will have an end of year and 2009 with important economic problems. We estimate that the industrial production will be reduced with percentage between 10 and 20%, depending on the crisis, and the GDP growth rhythm will lose between 2 and 4%, as exports are reduced and the demand for products and services on the domestic market" Coraci said. BNR announced that they estimate the reduction by half of the economic growth rhythm in 2009 at 4.6%. The estimates of industrialists were confirmed, indirectly, by the experts of the International Monetary Fund which announced last week they presume an accelerated slowing down of economic growth in Romania in 2009 at 4 - 5 % from the record level of 8 - 9% estimated for 2008. "Our estimates with regard to economic growth in 2009 are 4 - 5% but even this estimate may be optimistic, depending on what happens in Europe and the United States" the IMF representative for Romania and Bulgaria Juan Fernandez Ansola said. "The macroeconomic conditions got worse and there are signs for a slowing down of creditation extension, which will mean problems for the economic activity" the IMF representative said. The gross domestic product of Romania grew in a record rhythm of 8.8% for Q1 of 2008, the highest level reached after communism downfall, according to the data of the National Institute for Statistics (INS) and the last prognosis shows a growth of 9.1% over the whole year.

The National Commission for Prognosis estimated an economic growth of 6% for next year For this year, CNP kept its estimate for GDP at 505 billion lei ( 137.6 billion euros, at an exchange rate of 3.67lei/euro for 2008) at an economic growth of 9.1%. In the new projection, CNP considers that Romania's GDP next year will be of 578.5 billion lei ( 160.7 billion euros, at an average exchange rate of 3.60 lei/euro), the value announced by the government which was taken into consideration in the draft budget for 2009. For the following years, CNP kept its estimates of economic growth at 6.3% for 2010, 6.2% for 2011 and 6% for 2012 and 2013.

Foreign companies and SMEs, exposed to losses The specialists estimate that, on the basis of economic recession and creditation slowing down, as a result of the new conditions on the market, the biggest problems will be registered by multinationals and SMEs. According to the chairman of the National Council for SMEs , Ovidiu Nicolescu, without access to financing, bankruptcy will become a kind of " national sport". « Banks started already to grant business development credits with difficulty. Under the conditions where several SMEs relied on loans, once creditation got most expensive, many will go bankrupt, especially as the financial blockage in the Romanian economy is relatively generalized" Nicolescu explained. The chairman of UGIR Ioan Cezar Coraci estimates that, besides SMEs the first to be affected by the crisis, big problems will be encountered by multinationals, under the conditions where they are connected financially with the "parent" companies.« I'll give you the example of Arcelor Mittal who is obliged to reduce production by half in Romania, as the demand dropped in metallurgical products. It was a decision taken from the outside and affects the global business of the company. Similarly we could speak about the auto industry, where Ford faces major problems in the US but in Europe as well and had to close down several factories. It is interesting to notice what will happen to the investment in Craiova" Coraci explained. "Even the Romanian branches go very well, the crisis will be imported at group level and liquidities here will go to the holes in other countries" the representative of UGIR said.

The crisis could bring a wave of unemployed On the basis of economic crisis, many of the businesses will go bankrupt, and the number of unemployed will grow in 2008, specialists estimate. To avoid laying off, under the conditions where Romania has a crisis of working force, investors will apply the reduction of working hours and sending employees on leave, Coraci estimates. "The reduction of the production will mean that many people will be laid off. Under the conditions where it is very hard to find qualified workers, surely investors will choose alternative variants, such as laying off or working hours reduction. Surely the number of unemployed will go down" Coraci said. "Over the last three years, over 100,000 companies went bankrupt. Romania's luck was that, behind them, there were other companies set up, even more than before. Now the danger is the number of bankruptcies will go up and setting up companies might prove more difficult, as creditation conditions have become more difficult" Ovidiu Nicolescu said. The industrial production went down in August by 1.5% against the same month of the previous year, as a result of the reductions in the manufacturing industry and extractive industry which could not be compensated by the advance of the energy sector, the National Institute for Statistics announced.

Against July, the industrial production registered in August a drop of 8.7% as a result of the slowing down of manufacturing industry where the production was reduced by 10% and the electricity and thermal, water, gas energy sector where it went down by 0.3%. The only domain where in August there was a slight going up as compared to the previous month was extracting industry ( +0.6%). According to INS there were reductions in four or five big industrial groups. Thus, the production in the industry of capital goods was reduced by 32.3%, the intermediary goods by 9%, the industry of long-term goods by 6.8% and the production of current use goods by 1.6%. The only domain with production increase was energy industry, which had an advance of 3.1%. Analysts consider that the European economic slowing down could be felt on the local situation sooner than estimated.The statistics of the latest quarter will show concretely this phenomenon. "Bad news came sooner than expected and they show the direct and quick impact of economic slowing down in the euro zone, which could not be avoided by Romania" Nicolaie Alexandru Chidesciuc, senior economist with ING said. "This is the beginning, and over the next months we will not expect things to go better", the official said.

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