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ING: Pessimistic predictions for Q1 2009

Unemployment will exceed 6 pc and the salary rises will slow down, an ING analysis shows.

Bucharest - ING analysts offer a pessimistic forecast for the beginning of 2009. Thus, according to them GDP advance in 2009 will be 3.5 per cent, one of the lowest in the region.

"The economic data from Romania regarding the retail sales, industrial production and the activity in constructions were more negative than we expected. This does point to a high possibility to have a negative growth of GDP in the first quarter 2009. Thus, we believe that the economic advance will shrink to 3.5 per cent in 2009, the lowest in Eastern Europe, Middle East and Africa region, except Ukraine, which means that there are few chances to avoid a recession in 2009," reads an ING survey, taken over by Mediafax.

The analysts estimate that the recession, a process which supposes the registration of a negative economic growth in two consecutive quarters, started in the last three months of the past year, but this could be confirmed hardly this summer.

"The central bank should not be immune to the gloomy perspective of the economic growth and should take action earlier better than later. This includes also lower interest rates, which would however exert pressure on the RON. Consequently, we estimate that the exchange rate will be RON 4.7/EUR in the future quarters, without excluding however higher rates," shows the same analysis. The economic contraction could exert pressure on the budget, obtaining more reduced revenues, the analysts show.

Considering that the budgetary deficit from 2008 exceeded the threshold of 5 per cent of GDP, the probability for 2009 to be a year with a growing deficit is big, taking into account the fact that the measures announced by the Government are insufficient to remedy the imbalance. The analysts estimate for the end of this year an unemployment rate of over six per cent, and the fear to lose the job, together with the depreciation of the RON will contribute to reducing the amounts allotted to population for expenditures. Moreover, the depreciation of the RON and the fact that over 50 per cent of the loans taken up by population are in foreign currency will conduct to the growth of the badly performing credits. The analysts also believe that the salary rises from the private sector will slow down, because the evolutions of the economic growth will affect also the labour market and the deficit limit of 2-2.5 per cent of GDP is unrealistic. According to the specialists of the bank, the best approach to the budgetary deficit is to adopt the objective to reduce it in two-three years, through the implementation of policies considered credible by the market. Which finally means a drastic decrease of expenditures, especially those connected with salaries and possibly the increase of some taxes and dues.

 

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Tags: growth economic analysts ing

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