Romania Country Report - July , 2016

August 1, 2016

The report covers info as of July 29.

The risks of fiscal slippage and external balance deterioration, triggered by the fiscal innovations enacted last year and in 2016, have to materialised to some extent. The GDP expanded by 4.3% y/y in Q1, but the budget deficit risks exceeding 3% of GDP this year and the 12-months imports are rising at a rate that is double the growth of exports. The C/A balance already hit 1.5% of GDP in Jan-May – indeed partly due to the weak inflows from the EU budget, but also due to the deterioration of the trade with goods.

To reflect the developments, Fitch has affirmed Romania’s long-term foreign currency (LTFC) rating at BBB-, but downgraded country’s long term local currency (LTLC) rating to BBB- from BBB, the international rating agency said on July 22. The downgrade was made because Romania's public finance fundamentals are no longer stronger relative to the external finance fundamentals.

Key Points
• Romania confirms 4.3% y/y GDP growth in Q1, but revises downward capital formation
• Households’ monetary expenditure 10.6% up y/y in Q1, on 14.1% higher money income
• Industrial production disappoints with 1.5% y/y rise in May, plunges 4% m/m
• Construction works 8.9% up y/y in May as more non-residential projects launched
• Retail sales up 15.8% y/y in May
• Average net wage growth accelerates to real 18.3% y/y in May
• May ILO unemployment at lowest rate since June 2009
• General government budget posts 0.5% of GDP deficit in H1 as revenues fall
• Public debt to GDP ratio 0.4pp up y/y to 38.5% at end-May
• NPL ratio 7pp down y/y to 12.4% at end-May
• Romanian banks focus on retail segment in Jan-May
• Households lose interest in long and short maturity deposits as real interest rates plummet
• APS acquires €1.3bn NPL portfolios in Romania
• C/A deficit hits 1.5% of GDP in Jan-May
• 12-month imports in Romania 9% up y/y, twice as fast as exports
• Export growth accelerates to 6.9% y/y in April, imports 9.8% up y/y

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