BRD cuts Romania economic growth forecasts

BRD has revised its economic growth forecast for 2010 to the new data announced by the International Monetary Fund, that lowered its full-year GDP growth estimates to 0.3% from 1.3%. In 2009, the country's GDP contracted by 7.1%.

According to BRD, Romania may emerge from recession in the second half this year, but the recovery will be fragile with maximum 1% increase.

Therefore, Romania has the opportunity to rethink its growth model, and focus on an exports-driven recovery.

BRD said the real economy rate of 0.5% calculated based on the gross added value, will be so low, that it could easily slip into the negative territory. The economic growth, if possible, will be driven by industry and taxes, while the services sector might see a stabilization.

The construction sector continued its collapse, dragged down by residential, that saw an 18% drop in the Jan-Feb period, the bank estimating a 5-10% decline at year-end.

2010 remains a very challenging year for Romania, and policymakers' responses will be crucial for restoring consumer confidence, reigniting the labor market, economic growth, financial consolidation and stabilize currency exchange.

As for unemployment rate, BRD expects to peak at 9% in 2010, and drop afterward to 7% in 2012, in line with the slow economic recovery.

After a severe adjustment, current account deficit could swell further, but will remain at a moderate 5-6% share of GDP.

Although inflation rate will remain under the extreme consumer prices pressures, the year-end inflation shouldn't come in above 2%. The stability of exchange rates will remain a key factor in price stability.

Exchange rates is likely to drop to below 4.0 lei/euro by year-end, but on a long term, commercial deficit and government debt pressures might lead to a new depreciation of the national currency against its European counterpart.