While the governor of National Bank of Romania said the V-shaped recession’s lowest point was reached in first quarter, Joseph Stiglitz, Nobel prize laureate in Economics in 2001, said the unemployment rates would continue to rise and the worst of recession is yet to come.
Isarescu: we’ve reached the recession’s lowest point in Q1

“The rockbottom point of the V-shaped recession was reached in first quarter. The central bank has never denied the likelihood of an impact of the crisis, but we needed time to identify the channels through which it had spread”, said Isarescu.

As he continued, Romania will continue to return a positive economic growth, despite the first-quarter contraction of Gross Domestic Product in first quarter by 6.4%, but not at the same pace as a year earlier.

National Institute of Statistics said in mid May that Romania’s GDP contracted in fourth quarter 2008 by 3.4% from a quarter earlier, which according to the wide-spread definition marks the fall into recession in first quarter this year.

Furthermore, Isarescu expects the banks to have a good performance following the reduction of reserve requirements for FX liabilities, as they have already changed exposures.

The amount released from required reserves after the exclusion from the calculation methodology the two-year maturity FX liabilities is around 800 million euros, NBR governor said yesterday.

Stiglitz: the worst is yet to come

Joseph Stiglitz, Nobel Prize laureate in Economics in 2001 has a less optimistic view. From the viewpoint of Americans and people around the world, the worst of recession is yet to come, and Romania should always remain on guard against crisis, he continued.

“The unemployment rates are soaring, people will lose their jobs in America, which means they could lose their health insurance or even their homes as well. Last month only, over 300 Americans lost their homes. So, for most of the Americans, things are getting worse”, said Stiglitz in an interview for The Money Channel.

Stiglitz says Romania should adopt anti-cyclical financial policies to avoid large economic gaps and their after-effects, to protect the country from a future crisis for which the government should have a solid role in managing the markets and establish the rules of the financial game.

“We need to see the connection between politics and economics. The politics led to the creation of rules that allow banks to commit huge mistakes and to use this influence to finance the banks that actually created the problem. The lack of confidence, not only in banks but in political institutions, is what we will inherit after this crisis”, said Joseph Stiglitz, former senior economist of World Bank.

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