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February 26, 2021

Citi: Romania to register economic contraction of 2.5 pc in 2009

The reduced access to capital markets and the economic developments in the Euro Area will lead to an economic contraction of 2.5 per cent in Romania, a report authored by Citi and quoted by Mediafax shows. ‘We anticipate that the economic developments in the Euro Area and the unfavorable conditions registered on the capital markets will lead to a GDP contraction of 2.5 per cent compared to the economic growth of 7.1 per cent that Romania registered in 2008. Considering the degree of overheating registered during the period of economic boom we do not rule out a more sudden contraction that would play an important role in the external adjustment process’ the Citi analysis reads.

The current account deficit surpassed 12 per cent of GDP last year and the general consolidated budget registered a deficit of 4.8 per cent of GDP. Nevertheless there is good news too. Thus, for 2010 the Citi analysts estimate an economic growth of 4 per cent and the continued drop of the current account deficit to 7.5 of GDP and that of the budget deficit to 3 per cent of GDP. Citi considers that in 2009 the Romanian exports and imports will register a real growth of 8.1 per cent and 3.7 per cent respectively, while in 2010 they will register a growth of 9.6 per cent and 4.9 per cent respectively.

The bank’s analysts forecast an annual inflation rate of 4.9 per cent in 2009 and one of 3.7 per cent in 2010, provided the National Bank of Romania will maintain its prudent position until the fiscal policy becomes clearer and the currency exchange market becomes more stable. The analysts estimate that the monetary policy will be relaxed in the second half of this year and will lead to a drop in the interest rate from today’s 10 per cent to 8.5 per cent.

The Citi representatives estimate a drop in the currency exchange rate to RON 4.12/EUR at the end of the year, compared to the current prognosis of RON 4.2/EUR, considering that the national currency’s comeback as a consequence of the IMF agreement and of the recent improvement in investor confidence was stronger than anticipated.

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