EIU: Recession in Romania likely to drag well into 2010

Romanian economy is likely to keep shrinking by 7.5% in 2009, and an economic revival could take hold in 2010, with 1% growth in GDP, according to forecasts of Economist Intelligence Unit. However, the country may run a higher-than-expected budget deficit which would drag the recession well into 2010, “especially if additional austerity measures will be needed”.

“We expect a further drop in GDP quarter-on-quarter in July-September as well, as domestic consumption will continue to slow down. An economic revival is likely to take hold in fourth quarter which will partly offset the annual economic contraction as a result of base effect. Therefore, we forecast a decline in real GDP by 7.5% in 2009”, reads the EIU September forecast report.

In 2010, EIU expects a “modest” recovery, with a GDP growth as little as 1%, “adjusted by the early 2009 exchange rate correction”.

The paper says the 2009 and 2010 economic decline in the euro zone countries will lead to a worsening of Romania’s main export markets and FDI inflow will be deteriorated by the difficulty in attracting external financing and in credit tightening.

“The recession may worsen or last even longer than we have predicted in our basic scenario, especially if additional austerity measures will be needed in 2010 and 2011 to contain budget gaps within EU target range”, report shows.

“However, the external financing package could help the government bridge the budget and CA gap and should head off a higher contraction in output”, said EIU.

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