“Current economic crisis is likely to turn into a social crisis”

“A recession in European Union will have effects locally as well. After a long period marked by high growth of economy, the recession will sweep off Romania, whereas if the future leaders will have a responsible response, the situation will recover. In the business climate, small and medium sized companies will be the most affected while the multinational companies will always find a loophole,” Laszlo Diosi stated.

Economists say recession occurs when real gross domestic product growth is negative for two or more consecutive quarters.

Economy of the eurozone dropped 0.2% in second quarter, for the first time since the implementation of the single European currency, ten years ago.

The decline was fuelled by the compression of Europe’s biggest economies – Germany and France – and by the meltdown of the Italian economy.

Therefore, many EU member states will face the risk of recession, and 70% of Romania’s exports are directed to EU ember states, while the exports volume slowed down, analysts say.

Economic growth mounted to 9.3% in second quarter and 8.8% in first half.

Romanian politicians, including Prime Minister Calin Popescu Tariceanu said the economy is cushioned from global fears that shattered financial markets this month.

Economists have said repeatedly that Romania is risking major economic problems if the trade deficit will not back down, as the country will become vulnerable to any liquidity shortage on international markets.

However, National Commission of Prognosis (CNP) forecasts a 9.1% rise of GDP for this year and 6.5% for 2009.

OTP Bank’s CEO added that in case the Government would not react promptly in the future, we would witness rough consequences at the level of real economy, by consumption cut, and in the worst case scenario people would have to deal with foreclosures.

“Current economic crisis is likely to turn into a social one, manifested by salary cuts and staff downsizes in companies. I expect the constraints to enhance in the context of the highest stage of the economic crisis,” OTP Bank CEO added.

Diosi estimates that Romanian economy is facing a crisis surged in three directions. The first element of the crisis consists in overheating economy in the context of a high inflation, rise of salaries, and expansion of lending activity.

Liquidity shortages in the banking system together with doubling the country risk is the second factor generated by the financial crunch, and the third reason is the political climate, economy’s path being influenced by the presidential elections. “If we look at the history of American economy, we will see the same trend, said Diosi, forecasting an interval marked by corrections, after the supported hikes that started in 1999 on all segments: growth of productivity of Romanian companies, growth of investments and pay packages.

He also explained that OTP Bank Romania will focus more on deposits, asset management, private banking, SME, and not on loans.

“We will no longer on lending. We will focus on deposits and Internet, channel which gears 60% of overall transactions, compared to 40% last year”, Diosi mentioned.

Translated by Camelia Oancea