Rules of the game have changed. Economists on IMF scenario

The conclusions of IMF’s first mission in Romania led by Jeffrey Franks as part of the review of the country’s stand-by arrangement can be summed up to the words that many people don’t like to say and refused to admit that they may be facing a period of poor economic performance “severe recession”. If at first, when the stand-by arrangement was concluded, Romanian economists disagreed with IMF’s scenarios. Now, analysts interviewed by Wall-Street say the worst of recession has yet to come, most likely in the third quarter this year.

Industry will be the first to show green shoots of recovery

“The IMF scenario envisions Romania’s economic contraction widening to 8-8.5%. The forecasts are realistic and are in line with our last estimates (e.n - 8%), so we can move back in the positive territory in 2010”, Ionut Dumitru, senior economist of Raiffeisen Bank told Wall-Street.

Furthermore, if the government will cut public sector spending by 0.8% of GDP, Romania has all the chances to contain the budget gap in the new target range set by International Monetary Fund.

“The wider budget gap agreed with IMF is the result of a higher-than-expected economic contraction”, said Ionut Dumitru.

Romanian economy will start running quarterly positive growth rates or very close to zero, Raiffeisen Bank’s economist continued.

“Third quarter of 2009 may be this year’s worst, or the one that will pave the way to a return in the positive territory in the fourth quarter. It all depends on the performance of the agriculture sector”, Dumitru added.

The industry will be the first to show the green shots of recovery, Dumitry commented. “The industry stopped its freefall and it is already trending upward. We will ascertain the climb out of recession after it sets in”.

The new IMF targets may be missed

“The new IMF target on GDP seems more realistic, but even these targets are very likely to be missed”, said Nicolae Alexandru Chidesciuc, senior economist of ING Bank Romania.

“It is less likely to run a positive economic growth in 2010, but it is not excluded. It depends highly upon the government actions. If it lags in providing incentives to the economy, we may experience an economic contraction even in 2010”, said Chidesciuc.

In his view, the lowest point of recession will be reached in third quarter, this year. The remainder of the year will be marked by a mild recovery in terms of quarterly growth rates, but on an annual basis, it will remain in the negative camp.

The country’s gross domestic product shrank 9.7% in second quarter this year, on weighed down by the poor performance of construction sector, according to the latest ING report.

BCR revises GDP growth forecast

Lucian Anghel, senior economist of Banca Comerciala Romana, describes IMF’s new scenario as realistic.

According to BCR’s economist, the recession has yet to bottom out. The lowest point of recession is very likely to be reached in third quarter this year.

For the time being, BCR is revising its economic contraction forecast in order to take into consideration second-quarter statistics on the nation’s economic performance.