Country Report Romania October 2009

Outlook for 2010-11

• Romania faces a period of political uncertainty, following the dissolution of the coalition between the Democratic Liberal Party (DLP) and the Social Democratic Party (SDP), and the ouster of the DLP minority government.
• The president, Traian Basescu, named Lucian Croitoru, an adviser to the National Bank of Romania (NBR, the central bank), as prime minister to lead a "government of national unity", putting him on a collision course with the parliamentary opposition.
• A new government is unlikely to be formed until after the second round of the presidential election in December.
• Whatever the political complexion of the new government, there are doubts about whether it will implement the harsh public-sector cuts, including reductions in the wage bill and real cuts in pensions, demanded by the IMF.
• If the next government were to implement the IMF programme in full, it would come into conflict with the public-sector unions, and there is a risk of serious social unrest.
• The IMF will allow a consolidated budget deficit equivalent to 7.3% of GDP in 2009, based on bleaker assumptions about economic growth and revenue intake, and a deficit equal to 5.9% of GDP in 2010 (up from 3.6% originally).
• After steep GDP contractions in the first and second quarters, the Economist Intelligence Unit estimates an economic contraction of 7.6% in 2009. We forecast a slow recovery, with growth reaching 1% in 2010 and 4% in 2011.
• After shrinking to an estimated 5% of GDP in 2009, the current-account deficit is expected to remain around this level in 2010-11.

Monthly review

• The prime minister, Emil Boc of the DLP, announced the formation of an interim minority government on October 1st, following the resignation of SDP ministers from the governing coalition.
• The government fell on October 13th, as a result of a censure motion in parliament supported by the SDP and the two opposition parties, creating a crisis ahead of the presidential election to be held on November 22nd.
• The IMF has postponed its next visit to review the stand-by arrangement until after a new government has been formed.
• The NBR cut its monetary policy rate to 8% on September 29th.
• Data on retail trade and industrial output for July provide some indication that the decline in the economy, outside the construction sector, may have started to decelerate in the third quarter.

Source: Country Report

This report covers the following industry codes:
SIC Code: 70;79;39;59;15
NAICS Code: 72;71;31;44;23