8.1 C
April 21, 2021

Optimism or moderate pessimism?

The opinions already differ. Some consider that what was the most difficult part from the point of view of the economic crisis has come to pass and 2010 will be the year in which we will ‘lick our wounds’ and we will return to an upward trend. They are the moderate optimists. In fact, the National Commission of Prognosis’s forecast of a GDP growth of 1.3 per cent is bound to induce optimism. On the other hand there are those that state that although the crisis’s critical point seems to have been overcome its negative effects on the Romanian economy will be strongly felt this year through the growth of the unemployment rate, the drop of demand and a ‘cautious,’ even restrictive, economic activity featuring the continued shutdown of some companies. In what concerns the NCP’s prognosis, the moderate pessimists point out that the same institution anticipated an economic growth of 2 per cent in 2009, a year in which the economy actually dropped by almost 8 per cent.

The budget draft that is currently debated in Parliament offers only partial answers for those preoccupied with the immediate future. Anyway, the current year will be a year of austerity, with dwindling public expenditures, with layoffs in the public sector, with extremely modest public investments and with dwindling revenues for the public servants and for the public sector employees because of the cancelling of their lunch and gift coupons.

The unknowns concern not only the 2010 budget, a budget that should be completed by January 15 in view of continuing the negotiations with the IMF, the World Bank and the European Commission in the second half of the month. The pressures from the trade unions that have already expressed their dissatisfaction with the provisions of the budget law, as well as with the layoffs that are expected within the education, transport and public sectors, are also uncertain. That is why it is maybe too early to make any forecasts on the economic and social developments on the basis of a contested and contestable budget. What is certain is that 2010 starts like a year full of challenges. It started with excise hikes for mainstay products such as fuels, electric energy, tobacco and alcohol, in parallel with local tax hikes, with the hiking of insurance bonuses and with the cancelling of subsidies for poultry farmers – which will soon lead to price hikes for chicken meat products. Price hikes are expected for pork and mutton too, being rumoured to go as high as 40 per cent. The year also started with the freezing of salaries (except for the minimum wage that will grow only to match the inflation rate rhythm) and pensions. In this whole bundle of bad news for the common citizen the only good news is that… the VAT and the flat tax won’t be changed. A compensation that is too small for those that will have to resist the avalanche of price hikes that lead to a drop in the living standards.

In 2009 the consumption dropped simultaneously with the economy’s drop. Let us not expect 2010 to be any different. The consumer will turn out to be just as cautious as he was last year, if not even more reticent when it comes to buying products other than those strictly needed. The fears have not disappeared and the uncertain perspective on employment will determine even more Romanians to postpone any expenditure other than the essential ones, an economic behaviour that cannot stimulate economic growth. On the other hand, the tight pocket from which the Government will be forced to distribute the budget funds is not liable to stimulate the economy at macro level, except maybe some companies directly involved in the projects financed by the Romanian state.

In this context the hopes on recovery could rather be tied to the growth in exports (that have registered a contraction of approximately 25 per cent last year) once the Western, particularly European, markets return to normal. Exports however are dependent on competitiveness and the Romanian products do not excel at that despite the labor productivity growth registered in 2009. From this point of view, maintaining the export of cars and even hiking it once the Ford plant in Craiova starts working at full capacity becomes essential.

The major problems of the year that barely started however have to do with the Emil Boc Government’s capacity to manage the critical situation that Romania goes through. The manner in which it led the country last year is far from being encouraging, but hope is the last to die as the saying goes. In 2010 the Government’s major problem will consist of the large budget deficit and the public debt with which it has to be covered. In 2009 that public debt grew 100 per cent and over RON 60 bln (according to some sources) will have to be borrowed in 2010 in order to pay the old debts and to finance the budget deficit that stands at 5.9 per cent of GDP. Thus, almost one third of the expenditures will be ‘on the tab,’ something that is not encouraging at all for an economy in convalescence. The great danger however is represented by the re-inflammation of the inflation rate. Early this week I noticed a strange coincidence. An economic publication was warning against the inflationary danger, warning that the Government is putting pressure on the Central Bank in order for the latter to back a monetary expansion. Thus the loans contracted by the state would be cheaper and the Government’s effort when it comes to reducing state expenditures would be easier. The boomerang effect: the growth of inflation. On that same day a Central Bank official published in the Bucharest press an article in which he underlined that the unfortunate alternative for 2010 would be for the inflationary pressures to be unbridled… and he warned against the ensuing dangers. Could that be a simple coincidence? Possibly, but unlikely. It would be good for the current Government to assume its promised reform and to start taking the harsh measures needed for the economic relaunch. Even with the 2010 budget approved, nothing is certain in the political-economic domain in a volatile environment that is determined by multiple internal and external influences. Should we be optimists or moderate pessimists? The Government has an extremely difficult mission and the future of the Romanians depends on its efficient activity, at least the medium-term future. It remains to be seen whether it has the capacity to finalize its intentions.

Related posts

Anarchists and/or reactionaries

The Practice of Hallucinogenic Governments

Pharmaceutical… cancer