Moody’s senior analyst Kenneth Orchard said yesterday that Romania would likely enter a recession in 2009, as lending and domestic consumption will be affected by the shaky economic conditions worldwide, and the new government will be forced to toughen the fiscal policy.

The technical indicator of a recession used by economists is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).

“Moody’s opinion seems to me as a hypothesis in calculus, which must be taken into consideration, but I don’t think this is the most probable. A recession means two successive quarters of decline in the gross domestic product, and I don’t think any of this will happen,” Bogdan Baltazar, financial analyst, said to Wall-Street.

He also draws the attention upon the fact that domestic economic evolution depends very much on the government plan of the new executive.

“Of course very much depends on the wisdom of the new government, in the purpose of freezing expenses with salaries, of freezing salaries and not to raise them by 30%. It also depends on starting budgeted programs, projects of infrastructure, which fail to be completed due to corruption and incompetence,” said Baltazar.

Moody’s expects Romania's gross domestic product to shrink 0.3 percent and the budget deficit to reach 4.9 percent of GDP, whereas there is “volatility regarding the forecasts”, due to uncertainties on the economic conditions across the world.

Cabat: the forecasts are realistic

Moody’s analyst said a sharp decline of economy would affect the salaries, and this is the main factor that will force the new government to carry on with their pre-election vows regarding the social expenses.

“The new government will realize it has to deal with a real plummet of salaries and will have no choice. Even if they will cut expenses, they would not afford a 10% budget deficit of GDP”, he said.

Considering the toughened fiscal conditions, Orchard sees a 4.9% budget deficit for 2009.
Orchard also stressed that Romania, together with most Member States of the European Union, will have to start focusing less on slowing down inflation and more on economic growth, which will determine the central bank to cut the benchmark lending rate.

Anghel, BCR: “A really rough scenario”

Moody’s sees a much-too forced landing of the economy, according to local banks.
“I don’t think it is reasonable that Romania to go into recession in 2009, but on the contrary, ‘with a bit of wisdom’, as the governor said, I think we are likely to have a 4-5% growth of gross domestic product next year. Our forecast is 4.4% for 2009,” said Lucian Anghel, senior economist at BCR, NewsIn informs.

He added that a realistic forecast can be made only after the new executive will make public its governing plan.

Lucian Anghel stressed that consumption should not be very much affected if the credit volume will rise 15-20%, as World Bank anticipated.

Tariceanu disputes Moody’s forecasts

Moody’s has a flawed insight on Romanian economy, said Prime Minister Calin Popescu Tariceanu, as a reply to Moody’s estimation, according to which Romania would likely enter a recession in 2009, insisting that the economy would grow.

Prime Minister Calin Popescu Tariceanu insisted Romania would still enjoy economic expansion in 2009. "We cannot be affected by the economic crisis but Romania will have much higher economic growth than in other EU countries and economically developed countries," he said.

Translated by Camelia Oancea