Country Report Romania June 2009

Outlook for 2009-10

• The government, comprising the Democratic Liberal Party (DLP) and the Social Democratic Party (SDP), has a large majority, which should enable the cabinet to pursue its agenda unimpeded by the parliamentary opposition.
• The potential for intra-government conflict is great, given likely differences between the DLP and the SDP over economic policy and judicial reform.
• The government's pursuit of fiscal retrenchment under an IMF-funded programme will bring it into opposition with the unions, and there is a risk of widespread social unrest as austerity bites and unemployment grows.
• The IMF has agreed a revised consolidated budget deficit target of 4.6% of GDP in 2009 (compared with 2% of GDP previously), based on much bleaker assumptions about economic growth and revenue intake in 2009.
• Following real GDP growth of 7.1% in 2008, the Economist Intelligence Unit forecasts an economic contraction of 4% in 2009. A rebound, to growth of 1.8%, is forecast in 2010.
• Average consumer price inflation is forecast to fall gradually, from 7.8% in 2008 to 5.2% in 2009 and 3.7% in 2010.
• After reaching an estimated 12.4% of GDP in 2008, the current-account deficit is expected to contract sharply, to less than 7% of GDP in 2009.

Monthly review

• The president publicly rued his decision to invite the former communist SDP to join the coalition government, in a move interpreted as a ploy to increase his support among the centre-right electorate before the election in December.
• The National Anti-Corruption Directorate (DNA) announced in late May that it would prosecute Adrian Nastase, a former prime minister, on new charges, although attempts to prosecute him on other charges continue to face delays.
• The European Commission has begun excessive deficit procedures against Romania. These do not involve financial sanctions, but the Romanian authorities will be required to narrow the deficit over a set time period.
• The consolidated budget deficit reached Lei9.4bn (US$3bn) in the first four months of 2009, equivalent to 1.8% of forecast annual GDP.
• Real GDP contracted by 6.4% year on year in the first quarter of 2009, a much deeper fall than expected.
• A 67% year-on-year contraction of the merchandise trade deficit in the first quarter contributed to an 82% year-on-year decline in the current-accountdeficit.

Source: Country Report

This report covers the following industry codes:
SIC Code: 47;39
NAICS Code: 48;31