ING raises odds of a possible recession in Romania this year

Romania has low odds to avoid a recession in 2009, given the weakening foreign trade, sagging industrial production and constructions, which can spawn a 3.5% contraction of gross domestic product this year, while the budget deficit target seem to be utopian.

“Romanian economy will compress by 3.5% in 2009, being the steepest decline in EEMEA area, after Ukraine, which makes us think there are small odds for Romania to avoid the recession in 2009”, said ING Bank analysts in a report issued earlier today.

ING analysts said Romania’s GDP was likely to start falling since the first quarter this year”.

“Since November, ING analysts have revised downwards the outlooks regarding the economic growth in U.S. and euro area. A more severe recession in the developed countries will have a forceful impact over Romania, via two channels: the low foreign demand and less external financing, in the midst of an acute thirst for foreign funds,” reads ING report, quoted by NewsIn.

ING analysts say Romanian economy has weakened in the last quarter of 2008, whereas these data will be confirmed no sooner than June 2009.

“The central bank should not remain immune to the somber economic outlook and should promptly respond. This could consist in a cut in benchmark lending rate, and a higher pressure to exert on the local currency. This is why we expect the euro to be traded at 4.70 lei in the coming quarters and we don’t exclude an outreach”, ING analysts added.

On the other hand, National Bank of Romania sees the likelihood of a reduction of Romanian economy as low, projecting a 2.5% advance for this year, according to Cristian Popa’s statements, vicegovernor at BNR.

European Commission forecasted a 1.75% economic growth for Romania this year and a budget deficit of 7.5% of GDP.

Furthermore, Coface estimates a slowdown of economic growth to 2% in Romania, in the context of a weakened foreign trade, according to the report remitted earlier today.

Romania’s budget deficit will probably deepen even more this year, as the measures announced by Executive are not sufficient enough to encounter the corrections, and the 2-2.5% GDP target is “utopian”, ING economists added.

“Given the fact that in 2008 Romania had a budget deficit of over 5%, it is very likely for it to intensify, as the policy responses announced by the new government are not competent enough to redress the balance. The budget deficit target for this year of 2-2.5% is just not down-to-earth”, ING analysts said.

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