Romania Country Report - November, 2015

Romania Country Report - November, 2015

  • November 2015 •
  • 33 pages •
  • Report ID: 3307233 •
  • Format: PDF
The report covers info as of November 26.



The unexpected resignation of Prime Minister Victor Ponta has open the door to a so-called government of technocrats led by Dacian Ciolos - former EU Commissioner for Agriculture. The new government has a one-year term. It announced ambitious plans and if it is successful in only a small part of them the overall performance of the public administration would improve significantly.



The real sector has performed well in Q3, when the GDP seems to have increased by 3.6%. The EC has validated broad expectations for robust 4.1% advance next year, driven by the fiscal stimulus. The new government kept in place all the provisions of the Fiscal Code inherited from the cabinet of Prime Minister Ponta. Central bank said that a 3%-of-GDP deficit would be acceptable for one year.



The banking system posted record profit in Q3. But a new law, endorsed by Parliament but not still enforced by President Klaus Iohannis puts at risk its profitability. Under the bill, if mortgage borrowers are unable to make repayments, they can give their collateralised properties to banks and have their debt written off. The vast majority of the EUR6.5bn of mortgage loans denominated in foreign currencies (8% of the banking system's assets and 4% of the country's GDP) were extended in 2006-2008, when property prices were higher than they are now. Some 30% of these contracts are already under litigation.



Key Points

oRomanian PM Ponta's resigns; Parliament endorses technocrat government; PM resignation is rating-neutral - S&P

oGovernment sets ambitious ruling strategy, but lacks political support

oGDP grows 3.6% y/y in Q3 - flash estimate; EC, government expect GDP growth to advance from 3.5% this year to 4.1% y/y in 2016

oIndustrial output accelerates to 4.3% y/y in Q3; Primary energy gross consumption 4.2% up y/y in Q3; Electricity consumption 6.3% up y/y in Jan-Sep

oConstruction companies back at work ahead of 2016 local elections - works index up 9.9% y/y in Jan-Sep

oLabour market: wages up real 9.7%, employment up 3.1% y/y in Q3

oRetail sales up 10.6% y/y on lower VAT rate for food, higher households' budgets

oGeneral government posts 1.28% of GDP surplus for Jan-Oct; new government ready to endorse 2016 budget planning with 2.95%-of-GDP ESA deficit target

oRomania can afford 3%-of-GDP budget deficit, but just for one year - c-bank

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oBankers warn of higher fees in response to mortgage loans bill; Under the bill, if mortgage borrowers are unable to make repayments, they can give their collateralised properties to banks and have their debt written off.

oBanking system posts record profit in Q3

oC/A deficit narrows by 44% y/y to EUR653mn (0.4% of GDP) in Jan-Sept