Country Report Romania January 2009

Outlook for 2009-10

• The Democratic Liberal Party (DLP) and the Social Democratic Party (SDP), the parties that won the most votes in the parliamentary election in November 2008, have formed a government coalition led by Emil Boc as prime minister.
• The two-party government has a large majority in both houses of parliament, which should enable the cabinet to pursue its agenda unimpeded by the parliamentary opposition.
• The government will face difficult economic decisions, especially on the fiscal front, and the coalition partners could come into conflict over how to deal with the issue of corruption. As a result, the coalition may prove short-lived.
• The annual consolidated budget deficit is estimated at between 4% and 5% of GDP in 2008, as government spending rose steeply in an election year, but will contract sharply in 2009-10 as policy is tightened.
• Following estimated real GDP growth of 7.8% in 2008, the effects of the global economic crisis and policy tightening will result in negative growth, of -1%, in 2009. A modest rebound of 3% growth is forecast in 2010.
• Average consumer price inflation is forecast to fall gradually, from an estimated 7.9% in 2008 to 5.3% in 2009 and 4.1% in 2010.
• After stabilising at an estimated 13.2% of GDP in 2008, the current-account deficit is expected to contract sharply in 2009-10.

Monthly review

• The collapse of talks between the DLP and the National Liberal Party (NLP) prevented the formation of another centre-right government.
• The SDP insisted on the exclusion from the government of the Hungarian Union of Democrats in Romania (HUDR), the only other party to win parliamentary representation.
• The poor voter turnoutof 39%, the lowest in the post-communist erapoints to deep popular disenchantment with the political process and augurs ill for the new government in what will be a year of great economic stress.
• Preliminary estimates point to a consolidated budget deficit of 4-5% of GDP in 2008, making preparation of the new 2009 budget very difficult, and underlining the need for concerted fiscal tightening.
• Real GDP grew by 8.9% in January-September 2008, but a slowdown in the fourth quarter will pull down annual growth to about 7.8%.
• Consumer prices rose by just 0.2% month on month, and by 6.3% year on year, in December, despite the continued depreciation of the leu.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22