Romania Business Forecast Q1 2007

Content

• Executive Summary
  • Focus On 2007
• Chapter 1: Political Outlook
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Domestic Political Outlook
  • Shifting Alliances
  • The decision of minority members the Conservative party to resign from the ruling coalition leaves the government
  • without a majority in the Chamber of Deputies The probability of fresh elections in H107 has now escalated,
  • but even informal support by opposition PSD to the weakened Alliance, or some more permanent power reshuffle,
  • will be to the detriment of Romania's economic development
  • Table: Romania Cabinet & Other Key Posts (As of December 2006)
  • Foreign Policy
  • Moldova: Closer To Home
  • The accession of Romania and Bulgaria on January 1 2007 has helped push the EU's engagement with southern
  • and eastern countries further up the agenda in Brussels But engagement without enlargement has limited
  • potential, in our view Significant financial, political and economic commitments will be required from Brussels
  • going forward to make serious improvements in neighbourly relations
  • Table: Eu Labour Market Restrictions on Romanian and Bulgarian workers Post-Accession
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Introduction
  • Wage And Productivity Growth: Competitive Outlook
  • The Romanian government announced recently that sustained economic growth and competitiveness will be
  • its main priorities over the coming two years The importance of achieving these objectives has been underlined
  • by the findings of the EU's Autumn Forecast report, published on November
  • Table: Labour Productivity % Change Y-O-Y
  • Table: Compensation of Employees Per Head, % Change Y-O-Y
  • Economic Activity
  • Growth To Exceed 7%
  • Real GDP growth is expected to come in at an impressive 76% for full-year 2006, with levels slowing towards
  • 61% in 2007 as the regional cyclical upswing passes its peak
  • Table: GDP, Output & Population
  • Monetary Policy
  • Inflation Dips Below 5%
  • Figures released by the National Institute of Statistics showed headline inflation eased further in October, to
  • 48%, meaning 2006 end-year CPI should fall comfortably within the central bank's target 4-6% band
  • Table: Consumer & Producer Prices
  • Balance Of Payments
  • FDI And Remittance Coverage
  • The large trade deficit remains the key economic risk facing Romania, but we think that not only is the shortfall
  • as a percentage of GDP set to decline from 2008 onwards, but that coverage is going to remain very good With
  • FDI on course to come in as high as EUR8bn in 2006, and remittance inflows from Romanians abroad a massive
  • boon, the situation should be manageable, and is in fact a reflection of the strong economic growth in the country
  • Exchange Rate Policy
  • Appreciation To Slow
  • In line with several other regional currencies (SKK, CZK, HUF), the leu has been on a pronounced strengthening
  • path over the past few months, reaching fresh 6 month highs against the euro at the end of November Looking
  • ahead to 2007 and 2008, we believe the pace of appreciation will slow slightly, as growth eases and the
  • investment boom ahead of EU accession abates
• Chapter 3: Special Report
  • BMI Sovereign Risk Ratings
  • What And Where Are The Risks?
  • Table: BMI Sovereign RIsk Ratings
  • Emerging Europe
  • Diverging Ratings Trends
  • Table: Emerging Europe Sovereign Ratings - Evolution of Ability to Pay
  • Table: Emerging Europe Sovereign Ratings - Evolution of Willingness to Pay
• Chapter 4: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Legal Framework
  • Labour Force
  • Table: Demographic Indicators
  • Table: Employment Indicators
  • Foreign Investment Policy
  • Table: Emerging Euroe Annual FDI Inflows
  • Table: Romania, Annual FDI Inflows
  • Foreign Trade Regime
  • Table: Top Export Destinations, US$mn
  • Tax Regime
• Chapter 5: Key Sectors
  • Autos
  • Industry Forecast Scenario
  • In the first three quarters of 2006, Romanian vehicle production rose 128% y-o-y to 160,869 units, with a 195%
  • rise in car production to 151,633 units BMI has revised its automotive production forecast for 2006 from 296,096
  • units to 252,946 units Output should approach 500,000 by 2010
  • Table: Romania Autos Sector - Historical Data And Forecasts (CBUs unless otherwise stated)
  • Pharmaceuticals & Healthcare
  • Market Summary
  • The value of Romania's pharmaceutical market in 2005 was US$14bn at retail prices, up by 18% y-o-y on the back
  • of improved customer access to drugs For the remainder of 2006, the upturn is forecast to continue, with y-o-y
  • growth expected to be between the current rate of 145% and 2005's 18% towards the end of 2006, with the figures
  • illustrating the buoyancy of Romania's market Strong annual growth (of just under 10%) is predicted in the next five
  • years, making investment in the country more attractive By 2010, the value of the pharmaceuticals industry is
  • forecast to reach nearly US$2bn
  • Table: Drug Market Indicators