Romania’s FOB trade deficit narrowed by 55% y/y to EUR 2.91bn in Jan-Oct, according to our calculations* based on statistics office data. The gap was slightly above 2% of the full-year GDP forecast.

Exports increased by 9.2% y/y to EUR 41.2bn, while imports [FOB] narrowed marginally by 0.1% y/y to EUR 44.1bn.

In the past 12 months ending October, the FOB trade gap narrowed by 52% y/y to EUR 3.87bn, equivalent to 2.76% of the GDP expected for full 2013. For comparison, the FOB gap was rather steady at EUR 7.4bn in 2011-2012.

In October alone, the FOB trade deficit shrank by 53% y/y to EUR 423mn.

The second trade gap [and Balance of Payments] correction in the past several years is driven by the combination of strong external demand and subdued domestic demand. The trade gap hit EUR 20bn driven by the evaporation of forex inflows [that had been financing imports previously]. The recent improvement in the external balance, particularly seen in 2013, is being driven this time by the substantial expansion of exports and weak domestic demand.

Domestic consumption has remained low since the outset of the recession and has not exerted pressure on imports - despite the moderate strengthening of the local currency. Low employment, rising utilities prices and costly bank loan service have maintained the households’ disposable incomes at subdued levels in the past years. The uncertainty related to future revenues have driven part of these incomes toward savings rather than consumption. Furthermore, feeble investments have also maintained domestic demand [hence imports] at moderate levels.

* While INS discloses only CIF imports, we estimate FOB imports with the purpose of calculating FOB/FOB trade gap relevant for C/A purposes.