Country Risk Service Romania July 2012 Updater

Country Risk Service Romania July 2012 Updater

Overview

Following the defeat of the government led by Mihai Razvan Ungureanu in a confidence vote on April 27th, the prime minister, Victor Ponta of the Social Democratic Party (SDP), formed an interim government to serve until the election due in November 2012. It is made up of ministers from the Social Liberal Union (USL) and some non-party technocrats. The USL comprises the SDP, and the Centre-Right Alliance (ACD) of the National Liberal Party (NLP) and the Conservative Party (CP). The USL should easily win the parliamentary election and a four-year mandate. The outcome of the USL's attempt to impeach the president, Traian Basescu, is uncertain, despite his unpopularity, given minimum turnout rules for the referendum on July 29th. The Economist Intelligence Unit expects an easing of fiscal policy in the run-up to the election. Real GDP grew by 2.5% in 2011 and is forecast to slow to around 1% in 2012 as euro zone GDP contracts. Growth is forecast to average 4.1% per year in 2013-16. The current-account deficit is forecast to stabilise at around 5-8% of GDP in 2012-16.

Key changes from last month

Political outlook

The success or failure of the government's surprise move to impeach the president will be decided in a referendum on July 29th. The rule that 50% plus one of the electorate must turn out to vote for the result to be valid will make it difficult for the USL to succeed. Failure to remove Mr Basescu will result in a difficult cohabitation until the next presidential election, in 2014, and may lead to changes in the USL leadership.

Economic policy outlook

Preoccupied with political matters, the government is not expected to keep a tight rein on fiscal policy in the run-up to the election. We expect the consolidated budget deficit to exceed the 3% of GDP target.

Economic forecast

Romania entered a technical double-dip recession in the first quarter of 2012, when quarter-on-quarter real GDP contracted for a second successive quarter. We forecast a GDP growth slowdown to 1% in 2012.

Please Note: Due to the Nature of This Report The Toc is Not Available