Romania’s boiling economic conditions

Short-term indicators pointed to weak activities in May – a pattern shaped by the Easter holidays in 2013 and 2012. The whole period between Apr-May, defined ad-hoc in order to avoid the impact of Easter, industrial activity [output, exports] remained robust – and it even accelerated from Q1. Constructions activity – including investments lagged behind. The budget adjustment operated at end-July might keep public investments under pressure in spite of the government loosening fiscal gap target for the year to 2.3% from previous GDP of 2.1%. The loosening was prompted by low revenues and rising financial needs.

In the banking sector, loans turned to negative annual dynamic [nominal] and the share of bad loans kept rising. Moody’s rating agency said it has downgraded the long-term deposit ratings by two notches  on Romania’s largest banks BCR – Erste Group and BRD – Societe Generale. The outlook is negative. Given the size of the two banks, the downgrade is rather relevant for the entire country’s banking system.

The Romanian government will make public on July 31 the details of the follow-up stand-by agreement with the IMF and the EU, PM Victor Ponta announced.

The details of the new agreement were already sketched, he stressed, but last-minute adjustments are possible. Notably, the PM’s statement confirmed that the EU will join IMF in the new agreement with Romania – after speculations had put under doubt EU’s partaking in the Fund’s new deal.

The adjusted CORE2 inflation calculated by Romania’s central bank accelerated to 2.85% y/y at the end of June from 2.65% at the end of May, the monetary authority said. On the quarter, it decelerated from 3.03% at end-March.

The target for end-Q2, under the latest inflation forecast issued in May, was 2.6%. The least volatile indicator of consumer price inflation thus missed the target by 25bps, threatening the end-year 2.1% y/y target.

Romania’s central bank on Monday, July 1, cut by 25bps to 5% its monetary policy interest rate for the first time since February 2012, the monetary authority said. The move was announced as imminent by governor Mugur Isarescu several months ago.

The central bank quoted disinflation as the main ground for the cut, while on the other hand strongly recommending commercial bankers to unlock lending. Nonetheless, with the monetary transmission mechanism hardly functioning, the central bank’s rhetoric is debatable. The rate cut is rather aimed at bringing the monetary policy rate in line with the market than pursuing any particular policy.

Read more in Intellinews’s comprehensive report, Romania Country Report>>

 

Ukraine’s financial sector bites the bullet

Ukraine’s economy contracted 1.1% during the first quarter of 2013. The gross domestic product (GDP) in current prices amounted to UAH 301.598bn in Q1. In q/q terms, the GDP grew by 0.6%, which was predetermined by a seasonal factor. GDP per capita amounted to UAH 6,624, down by 0.96% y/y.

The country’s economic growth slowed to 0.2% in 2012 from 5.2% in 2011. After first-quarter GDP data was released, most of the rating agencies and global financial institutions lowered their full-year GDP growth forecast for Ukraine. The GDP is expected within a range of a growth of 1.1% to a contraction of 0.5%.

The World Bank believes that the high fiscal deficit, continuous current account deficit and high external debt remain the main challenges for Ukraine. In addition, the national currency de-facto peg to the dollar and declining foreign reserves also remain a concern for the authorities.

Read more in Intellinews’s comprehensive report, Ukraine’s Financial Sector>>

 

Romania’s reform plans derailed and delayed

Slow reforms in state owned companies indicate that the final review [and completion] of the stand-by arrangement with IMF will probably be shifted towards the end of 2013 – from initially April 2013. Officially, the Fund’s team is expected to run the final review in June and submit the conclusions to the Board in July.

At least three state controlled companies are in critical state: cargo railway company CFR Marfa, chemical plant Oltchim and postal company Posta Romana.  The government admitted there are three bidders for CFR Marfa – however they are unlikely to boost the activity of the debt-ridden railway company.

The government also claims that there are still investors interested in Oltchim – but it has yet to start on any privatisation procedure. It is unlikely that any serious investor would show up at such short notice.

For Posta Romana, the government postponed starting the privatisation procedures from May 28 to six months later. This proves of delayed plans of SBA with IMF to yearend.

Read more in EMD’s comprehensive report, Intellinews Romania Country Report>>

 

Polish retail market on a roller-coaster ride?

The Polish retail market maintained an upward y/y path in 2012, though sales slowed down visibly in Q4. The situation varied across segments, but overall the increase of market value was supported by the expansion of the large retail chains, which managed to offset the downward impact of a sluggish demand upon sales per store by the network enlargement (higher volumes).

The prospects for this year remained optimistic, considering the record-high shopping center deliveries planned, even though consumer demand will likely continue to deteriorate, paralleling the projected slowdown of the country’s economy.

Figure 1 Retail sales index in 2007-2013 (monthly, y/y in %)

These are only a few of the insights in the new Intellinews Report : Polish Retail Sector. Learn more and purchase now>>

 

Investment funds rising as rivalry to bank deposits

The capitalisation of  investment funds sold on the Romanian market increased by more than EUR 2bn from some EUR 0.2bn at the end of 2008. By comparison, households’ bank deposits increased by EUR 5bn.

Romanian banks might face one more hurdle in their activity: rising competition for households’ savings. The investment funds are a viable alternative to bank deposits and they provide higher yields [at higher risk]. As the banks cut deposit rates, household shift their savings to monetary investment funds. Once the funds gain respectability, those with higher risks [like share funds] will be an alternative and private pension funds will also predictably gain ground.

These are only a few of the insights in the new Intellinews Report : Romania Country Report. Learn more and purchase now>>

 

Rise in Romania’s public debt eases as fiscal consolidation advances.

Romania’s public debt edged up a modest 0.1pps ytd to 34.8% of GDP [ESA methodology] at the end of October 2012 – after it nearly tripled since the end of 2008. The domestic public debt expanded sharply by more than three times while the external public debt advanced at a slower pace yet still more than doubling. Notably however, a large part of the domestic debt is denominated in foreign currency – actually more than half of it [54.8% at the end of October].

Romania public debt

Much more in the EMD report: Romania Country Report

 

Romania’s central bank admits inflation slips outside target band by end-2013

Romania’s central bank has raised the year-end inflation projections by 1.9pps to 5.1% y/y for 2012 and by 0.5pps to 3.5% y/y for 2013, according to its Quarterly Inflation Report released on Nov 7. The IMF expert team visiting Romania expressed concerns with the price stability.

Consumer price inflation eased to 5% y/y in October after peaking to 5.3% y/y in September, the statistics office reported. CORE2 inflation was 3.2% y/y in September. The average consumer prices in the 12 months ending October were 3.1% up y/y, accelerating from 3% y/y growth registered last month.

 

 

 

 

PLUS:
FOCUS STORY: Are there grounds for euroscepticism in Romania?

This is only a small extract of the insights in the new Intellinews : Romania Country Report; read more and purchase now>>

 

Ukraine’s currency may have to be devalued

The IMF has maintained its GDP growth forecast for 2012 at 3% y/y compared to 5% growth recorded in 2011. In 2013, the GDP growth is expected to reach 3.5%. The global slowdown of economic growth has a great impact on the Ukrainian economy as one of the CIS energy importing economies, the IMF noted. Moreover, the IMF warns about risks in case of intense crisis in the Eurozone. For the energy importers in the region, direct trade spillovers from a further escalation of euro crisis would also be sizable given that Europe is the most important trading partner outside the region. If downside risks materialize, external balances would deteriorate, which would tend to exacerbate capital outflows and put pressure on currencies, especially among energy importers with large external financing needs (Ukraine).

Rating agency Fitch believes that the local currency hryvnia may fall 10% by the end of the year due to “fairly weak” confidence in the currency. A slight devaluation and adopting to more flexible exchange rate would benefit the country, the agency noted. At the same time, officials, including PM Mykola Azarov assures of a stable hryvnia and brushes off economic preconditions for devaluation. The hryvnia, which has declined 1.2% against the dollar this year, was devalued by almost 35% in Q4 2008.

We believe that Ukraine will have to devalue national currency in the next few months in order to support competitiveness of exports and prevent the growth of foreign trade deficit. If the economic situation worsens, the drop in NBU’s reserves may reach critical level and devaluation may be inevitable.

The outlook on domestic banking system remains negative, according to Moody’s Investors Service. The rating agency believes the challenging operating environment and weak economic growth through 2013 as main causes. The real GDP growth is expected to decelerate to around 2.5-3.0% in 2012. According to the rating agency, this weak economic performance will continue to weigh on banks’ credit growth and financial positions over the next 12-18 months.

 

 

 

 

Much more in the Intellinews report: Ukraine Financial Sector Report

 

Romania’s economy wears weary outlook

Romania’s economy increased by 0.7% y/y in H1 and will end with  negative for the year, less than -1%.  Bullish expectations were ruined by  poor use of EU funds and by  below-average agricultural production. The IMF and the government expect a much stronger advance in 2012 of 2.5%, according to the Fund’s World Economic Outlook. But even this will not help the country return to  pre-crisis 2008 GDP levels.

Romania’s statistics office revised the estimate for the country’s Q2 GDP to 1.1% y/y, down from 1.2% y/y previously announced on September 6, according to the newly introduced T+95 estimate. The adjustment is minor and does not send positive signals for the country’s economic growth,  already expected to slow  in H2.

These are only a few of the insights in the new IntelliNews : Romania Country Report. Learn more and purchase now>>

 

Romania’s GDP mirage: fact or fiction?

Romania’s seasonally-adjusted GDP edged up by 0.5% q/q in Q2, after it has stagnated for three years around the same level. Against the past quarter, the domestic demand strengthened robustly driven by both consumption (1.6% up q/q) and gross fix capital formation (gfcf, 4.4% up q/q). On the opposite, the external demand weakened visibly by 1.4% q/q. The imports edged up by 1.2% q/q contributing, besides the export’s weakening, to the deterioration of the external balance.

GDP and main elements by utilisation, quarterly, seasonally adjusted [2000=100]

These are only a few of the insights in the new IntelliNews : Romania Country Report. Learn more and purchase now>>