Romania Country Report - May, 2016

June 1, 2016

The report covers info as of May 31.

The debt discharge law was promulgated, first debtors have submitted requests already. Banks consider challenhing the bill to Constitutional court – BancPost has already submitted a request in this regard.

Growth forecasts are particularly optimistic. Romania's GDP will accelerate to 4.2% this year from 3.8% last year, driven by surging domestic demand, according to EC’s Spring Forecast. But the commission warned on widening budget deficit. The deficit should further deepen in 2017, to 3.4% of GDP, based on a no policy-change assumption, the EC projected. Romania’s economy is on a cyclical upswing supported by strong domestic demand, but underlying inflation is expected to continue growing and the current account deficit to widen further because of import growth, the International Monetary Fund (IMF) cautioned on May 11 after concluding Article IV Consultations with the country.GDP is expected to rise by 4.2% this year before decelerating to 3.6% y/y in 2017, under the IMF’s scenario.
The fiscal stimulus has significant impact. The retail sales index in Romania increased by 19% y/y in Q1, according to the statistics office.

Mixed figures in the real sector. The industrial production growth decelerated to 0.6% y/y in Q1, from 2.0% y/y in Q4 and 2.8% y/y in full 2015. This was the weakest performance since 2009. The construction volume index increased by 1% y/y in Q1, Romania’s statistics office said on May 13.

The banking system improves profitability, but fails to spur financial intermediation. Romania’s banking system achieved a 1.26% return on assets (ROA) in Q1, versus only 0.91% in Q1 last year and 1.24% in 2015, according to the central bank. Its average assets increased by 2.5% y/y to RON370bn (€82.4bn) in the quarter. Bank loans increased by 3% y/y at end-Apr, but the corporate loans were 1.5% down y/. NPL stagnates. The NPL ratio increased marginally by only 0.01pp q/q in Q1

Key Points
• Local elections are scheduled for June 5
• Fourth minister leaves Romanian technocratic government
• GDP 4.3% up y/y in Q1, flash estimate shows
• Inflation hits minus 3.25% y/y in April; c-bank cuts 2016 yearend inflation forecast by 0.8pp to 0.6% y/y
• General government budget balanced in Jan-Apr from 0.8% of GDP surplus last year
• Public debt up 4.6% y/y to 38.1% of GDP at end-March
• Banking system posts €258mn profits in Q1, 38% up y/y
• Q1 C/A balance deteriorates to 0.9% of GDP deficit from surplus last year
• Foreign trade gap widens 45% y/y to 6-yr peak in Q1

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