Romanias C/A gap remains unchanged at 4.5% of GDP in 2011.

By bne IntelliNews February 14, 2012
Romania's current account deficit edged up a mere 3% on the year to EUR 5.68bn in 2011, but remained roughly unchanged at 4.5% of GDP, the central bank said. The foreign trade deficit of goods and services narrowed by 2% to EUR 7.08bn last year (5.6% of GDP vs. 5.9% in 2010). Income deficit expanded by 22% to EUR 2.34bn in full 2011 due to higher interest payments generated by foreigners' capital investment. The 4% broader surplus on current transfers (EUR 3.74bn), on the other hand, was a result of a combination between lower wage remittances and stronger EU funds inflows. Non-residents' direct investment in Romania (net FDI) further declined by 14% to EUR 1.9bn in 2011, accounting for only 1.5% of GDP versus 1.8% of GDP a year earlier and 6.7% of GDP in 2008 before the global credit crunch. IntelliNews Comment : Romania's current account and foreign trade balances have recently stabilised at more sustainable levels after the excessive debt and FDI inflows observed in 2007-2008 diminished. Under an optimistic scenario, sound inflows would be generated in 2012 via better absorption of EU funds. Even if not at the same level as in 2007-2008, the EUR 6bn of inflows will predictably have a sizeable effect on the country's balance of payments. In principle, the efficiency of EU funds should be better than that of the foreign-financed consumer loans and the exuberant real estate investments observed in 2007-08. The domestic demand, driven by the EU funds absorption, will predictably encourage again the imports, but assuming that the local industry capitalises better this time the opportunities of the local market, the EU funds' net effect on the current account balance should be positive.
Current Account (EUR mn)
2007 2008 2009 2010 2011 y/y
Current Account -16,677 -16,157 -4,915 -5,518 -5,682 3%
% of GDP* -13.4% -11.6% -4.2% -4.5% -4.5% n.a.
A. Goods and Services -17,345 -18,450 -7,165 -7,196 -7,083 -2%
Goods -17,822 -19,109 -6,871 -7,600 -7,465 -2%
Services 477 659 -294 404 382 -5%
B. Incomes -4,152 -3,683 -1,902 -1,914 -2,336 22%
C. Current Transfers 4,820 5,976 4,154 3,592 3,737 4%
FDI 7,049 9,310 3,554 2,219 1,917 -14%
% of full-year GDP 5.7% 6.7% 3.1% 1.8% 1.5% n.a.
% of CA deficit 42% 58% 72% 40% 34% n.a.
Source: BNR, IntelliNews
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