Romania’s fob/cif trade deficit hit €13.5bn (7.1% of GDP) in the 12-month period ending May, according to bne IntelliNews calculations based on the statistics office’s data.

The gap marked a new record for the past decade, putting more pressure on the exchange rate that the central bank strives to maintain at a constant level. The depreciation risks were already priced in the high yields of the government papers (the highest in the region), though.

The central bank sold €1.5bn on the market to smooth the currency’s nominal weakening, according to estimates from ING.

Above-expectations June inflation likely to be published on July 11 will add more pressure on the exchange rate. However, a moderate weakening would dissipate the tensions accumulated over the past couple of years, bring more balance and facilitate a soft landing of the economy from growth rates that are visibly above potential (6.9% y/y in 2017). GDP might eventually expand by less than 4%, a scenario endorsed by the latest Unicredit quarterly forecast that envisages 3.9% growth this year followed by 3.5% in 2019. Such projections are in line with the broader consensus.

On the upside, net imports of goods are partly balanced by the exports of services, and the Current Account (CA) balance has not deteriorated at a proportional rate: it is furthermore expected to stay below 4% of GDP in the next couple of years.

The CA deficit widened by 15% y/y to €2.1bn in January-April (when it hit 1% of GDP), demonstrating a slower rate of deterioration of the external balance compared to Q1 (when the gap widened by 26% y/y) and 2017 (+85% y/y), data from the central bank revealed. In its latest country survey, Fitch projected an average current account deficit of 3.9% of GDP for the 2018-2019 period, on the back of a widening trade deficit.

Under a broader perspective, the country’s trade gap remains far below the €23.5bn deficit in 2008, at the beginning of the recession. At that time, the country’s GDP was €145bn, while it neared €190bn in the latest four quarters ending March.

Furthermore, the trade gap to GDP ratio is even smaller than it was during the first years of recession in 2009-2012 (7.7%) when the deficit was hovering around €10bn for a €130bn GDP. A sharp rise in the GDP led to wider deficits for a number of reasons: the growth was mainly driven by consumption (of goods that the local economy is still not able to deliver) and the structure of economy (dominated by forward processing companies that add small amounts of value added to the re-exported goods) among others.