Romania’s 12-month C/A gap widens to 1.3% of GDP at end-Feb 2014

By bne IntelliNews April 14, 2014

Romania’s 12-months rolling current account gap widened to EUR 1.8bn, or 1.3% of GDP at the end of February, from 1% a month earlier, according to IntelliNews calculations.

February’s current account gap surged by more than eight times on the year to EUR 490mn - the widest deficit in 16 months. The trade balance deteriorated slightly in the month – but there were other current account elements that contributed three quarters of the overall annual widening in February.

BROADER PERSPECTIVE. After the major four-fold narrowing in 2013 to 1.1% of GDP, Romania’s current account deficit is expected to gradually widen during the coming years – but not exceeding 2% of GDP by 2017, under the latest projection of the state forecasting body CNP. The domestic demand for both consumption and investments, recovering from the subdued levels in 2013, would drive the pattern.

On the upside, inflows from the EU budget under the current transfers account might strengthen as the absorption of cohesion funds improves. Inflows under current transfers increased by only 9% y/y to EUR 6.3bn [4.5% of GDP] in 2013 and the potential growth in terms of share in GDP is for another couple of percentage points over the years until 2020.

But the slight current account widening in Jan-Feb this year came rather as an effect of the higher external debt interest and foreign investors’ dividends. Stronger retail sales [up 7% y/y in Jan-Feb] had certain impact on the external balance, particularly in February – but this was so far offset by the stronger exports.  

OFFICIAL DATA. The country’s current account turned to a EUR 102mn deficit in Jan-Feb from a EUR 177mn surplus a year earlier, the central bank announced.

The trade balance remained in the surplus area in Jan-Feb, but the balances of the incomes and current transfers deteriorated.

Both exports and imports of goods increased by more than 9% and the deficit slightly widened by EUR 28mn to EUR 201mn. The wider deficit on the goods area was offset however by slightly wider surplus in the services area – where both inflows and outflows remained roughly constant.

The net outflows under the incomes account expanded by 33% y/y to EUR 783mn as the gross outflows increased by 28% y/y to EUR 953mn. The balance of the current transfers also deteriorated, with the surplus diminishing by 15% y/y to EUR 507mn - but at a smaller scale and with not so obvious cause on either the inflows or the outflows side. Inflows have remained roughly constant at EUR 1.2bn.

FDI RISES ON EQUITY CONTRIBUTIONS. Non-residents’ direct investments in Romania increased by 35.6% y/y to EUR 282mn in Jan-Feb, of which equity stakes consolidated with the estimated net loss of FDI companies amounted to EUR 375mn and intragroup loans recorded a net negative value of EUR 93mn. The decrease in intragroup loans during Jan-Feb is visible in the lower stock of the private sector’s external debt possibly driven by lower exposure of foreign financial groups to their local subsidiaries.

CA balance EUR mn 2013 2013 2013 2014 2014 2014 Balance Balance
Jan-Feb Inflows Outflows Balance Inflows Outflows Balance y/y ch. y/y ch.
Current Account 10,391 10,214 177 11,146 11,248 -102 -158% -279
A. Goods and Services 9,021 8,849 172 9,745 9,571 174 1% 2
a. Goods 7,576 7,749 -173 8,275 8,476 -201 16% -28
b. Services 1,445 1,100 345 1,470 1,095 375 9% 30
            - transport 526 177 349 500 169 331 -5% -18
            - tourism, travel 143 206 -63 166 219 -53 -16% 10
            - other services 776 717 59 804 707 97 64% 38
B. Incomes 156 744 -588 170 953 -783 33% -195
C. Current Transfers 1,214 621 593 1,231 724 507 -15% -86
Source: BNR                

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