Recently published research from Business Monitor International, "Romania Business Forecast Report Q1 2013", is now available at Fast Market Research
Boston, MA -- (SBWIRE) -- 03/15/2013 -- Core Views
We forecast the Romanian central bank's policy rate will be lowered by 0.25bps to 5.00% in 2013, as the National Bank of Romania (NBR) tries to balance weak domestic demand with a moderate uptick in inflationary pressures. We expect headline consumer inflation to fall just above the NBR's target range of 2.0% and 4.0% in 2013, making the bank wary of lowering rates any further than we have projected.
We anticipate the Romanian fiscal deficit to narrow to 1.6% of GDP in 2013, but caution that the drive towards fiscal balancing will be threatened by the ongoing crisis in the eurozone and domestic opposition to fiscal austerity.
While we expect to see a victory for Victor Ponta's Social-Liberal Union (USL) in the December 9 legislative elections, we do not anticipate any significant deviation from EU/IMF imposed fiscal consolidation programmes. Instead, we expect to see an uptick in political risk as the Romanian electorate becomes increasingly disillusioned by the discrepancy between Ponta's anti-austerity rhetoric and the fiscal austerity measures being imposed by his government.
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Major Forecast Changes
We have revised down our forecasts for Romanian real GDP growth in 2013 and 2014 to 1.7% and 3.1, from previously 2.2% and 3.5%, respectively. Leading indicators point to still-weak domestic and external demand which will weigh on economic growth through H113.
Weak domestic demand and reasonably strong export growth in Q312 led us to revise our current account deficit forecast to 4.0% in 2013, from 5.1% previously. While the country's current account deficit appears to be steady, its precarious international investment position will pose risks to the balance of payments in H113.
Romania's nominal fiscal deficit narrowed considerably in H112, persuading us to amend our forecast to 1.6% of GDP in 2013, from 2.1% previously. Increased tax collection and fiscal austerity measures have contributed to the better-than-expected figures.
Risks To Outlook
A more pronounced slowdown in eurozone growth would likely have a negative effect on Romania's growth trajectory. Due to its high degree of trade integration with eurozone countries, Romania's economic recovery remains dependent on external demand remaining receptive to its exports.
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