Country Report Romania March 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.
• However, the potential for intra-government conflict is great, given likely differences between the DLP and the SDP over economic policy and judicialreform.
• The government's pursuit of fiscal retrenchment will bring it into opposition with the public-sector unions, and there is a significant risk of widespread social unrest, as austerity bites and unemployment grows.
• The annual consolidated budget deficit is estimated at 5.2% of GDP in 2008 (on EU methodology), when government spending rose steeply because of the election, but will contract sharply in 2009-10 as policy is tightened.
• Following real GDP growth of 7.1% in 2008, the effects of the global economic crisis and policy tightening will result in an economic contraction of 1.8% in 2009. A rebound, to growth of 2.3%, is forecast in 2010.
• Average consumer price inflation is forecast to fall gradually, from 7.8% in 2008 to 6.2% in 2009, and to 4.5% in 2010.
• After reaching an estimated 12.4% of GDP in 2008, the current-account deficit is expected to contract sharply in 2009-10.

Monthly review

• In its bi-annual monitoring report, the European Commission sharply criticised Romania for its lack of progress in judicial reform and combating corruption, but stopped short of imposing sanctions.
• The trial on corruption charges of Adrian Nastase, a former prime minister and SDP leader, scheduled for February 26th, was postponed for a month.
• Romania has claimed victory in its dispute with Ukraine over the Black Sea continental shelf.
• The Romanian authorities have started talks with the IMF and the EU on a loan package.
• Real GDP growth slowed sharply in the fourth quarter, resulting in full-year growth of 7.1% year on year in 2008.
• Consumer prices rose by 1.2% in January, reversing the downward trend in inflation seen in the fourth quarter of 2008.
• A sharp fall in imports cut the external deficit in the fourth quarter of 2008.

This report covers the following industry codes:
SIC Code: 37
NAICS Code: 336