Romania’s trade gap expressed in FOB/CIF terms narrowed by 3.5% y/y to €1.01bn in April, despite the longer-term trend toward wider trade deficits. Exports increased by 9.7% y/y in the month, 2.4pp faster than the imports, pushing the export performance (the differential between exports’ and imports’ growth rate) to the highest value since August 2014.

However, more is needed for country’s trade gap (€13.3bn in the rolling 12 months ending April, or 6.6% of the year’s projected GDP) to return toward more sustainable levels. Notably, the 12-month rolling FOB/CIF trade gap stabilised in April, returning below the level seen in February yet nearly 27% up y/y. In FOB/FOB terms, the trade gap’s widening is even more visible: 32.3% up y/y to €10.1bn in April.

The trade gap narrowed in April for the first time since July 2016, when the irregular development was caused by taxation effects: it reflected the surge in food sales (hence imports) in June 2015 at the time of the VAT rate cut for food items.

The performance indicates a certain stabilisation of the external deficit, possibly only temporary). It is premature to conclude that the conditions that would reverse the trend (and bring down the trade gap) are already in place. The consolidation of a second pole of the automotive industry around Ford’s plant in Craiova, and the return to a more moderate rise of households’ consumption could, however, significantly improve the country’s external balance in the medium term. Wage growth has already moderated despite some wage hikes in the public sector still in the pipeline, but bank lending keeps stimulating households’ consumption. Ongoing talks between the central bank and commercial banks on capping the indebtedness ratios for retail customers would have effects on consumption and exports, though.

Foreign Trade ( €mn )	2007	2008	2014	2015	2016	2017	Q1 18	Apr-18	12M
FOB Exports	29,380	33,725	52,460	54,609	57,392	62,642	16,987	5,234	64,613
	13.7%	14.8%	5.8%	4.1%	5.1%	9.1%	9.8%	9.7%	9.4%
CIF Imports	50,883	57,240	58,508	62,970	67,364	75,598	19,702	6,246	77,949
	24.9%	12.5%	5.9%	7.6%	7.0%	12.2%	10.8%	7.3%	12.0%
FOB Imports*	46,966	52,834	56,096	60,373	64,587	72,482	18,890	5,988	74,735
FOB/CIF Balance	-21,502	-23,516	-6,049	-8,360	-9,972	-12,957	-2,716	-1,011	-13,336
Balance y/y	44.4%	9.4%	6.0%	38.2%	19.3%	29.9%	18.1%	-3.5%	26.8%
FOB/FOB Balance*	-17,585	-19,109	-3,637	-5,764	-7,195	-9,840	-1,903	-754	-10,122
Balance y/y	49.6%	8.7%	6.1%	58.5%	24.8%	36.8%	21.5%	-6.8%	32.3%
Source: INS, BNR, *estimates