Country Report Romania December 2008

Outlook for 2009-10

• In the November 30th parliamentary election, the opposition Social Democratic Party (SDP) won the popular vote by a slender margin, but won fewer seats in parliament than the Democratic Liberal Party (DLP).
• Contrary to expectations, the DLP and the SDP seem likely to form a coalition, and would have a strong parliamentary majority, even without the Hungarian Union of Democrats in Romania (HUDR).
• A breakdown of talks between the SDP and the DLPfor example, over the division of ministriescould yet result in the formation of an alternative government.
• The government will face difficult economic decisions, especially on the fiscal front, and could come into conflict on the corruption issue. As a result, it may prove short-lived.
• The annual consolidated budget deficit is estimated at 3.5% of GDP in 2008, as government spending rose steeply in an election year, but will fall gradually in 2009-10 as policy is tightened.
• Following estimated real GDP growth of 8.2% in 2008, the effects of the global economic crisis and policy tightening will take growth below 3% in 2009, and only a modest acceleration is expected in 2010.
• Consumer price inflation is forecast to fall gradually, from an estimated 7.9% in 2008 to 5.8% in 2009, and to 4.2% in 2010.
• After stabilising at an estimated 13.3% of GDP in 2008, the current-account deficit is expected to contract sharply in 2009-10.

Monthly review

• As anticipated, the main opposition parties, the SDP and the DLP, emerged as joint winners of the election, with the National Liberal Party (NLP) and the HUDR the only other parties to win representation in parliament.
• The poor turnoutof 39%, the lowest in the post-communist erapoints to deep popular disenchantment with the political process.
• Preliminary estimates put the 11-month consolidated budget deficit at 2.9% of GDP, making it all but inevitable that the full-year deficit will be well above 3% of GDP, underlining the need for fiscal tightening.
• Real GDP grew by an estimated 9.1% year on year in the third quarter, although October industry data point to a slowdown in the fourth quarter.
• The January-September current-account deficit rose by 15% year on year.