This report covers the main macroeconomic releases for Romania from November 2013 as well as the financial and political trends in the country during this period. It also reviews corporate news, including developments for the banks Volksbank Romania, BCR, BRD, and Garanti Bank.

Romania’s GDP gained ground, increasing by 2.7% year on year from January–September, and the country might end the year with a record growth of nearly 3%. Part of this year’s growth, however, was driven by the bumper crop. Consumption edged up very modestly, and gross fixed capital formation plunged by some 4% in January–September. Both features are seen as threats to a growth model based on rising domestic demand, such as the model sketched by the European Commission. Indeed, retail sales have picked up slightly in Q3 and October under a pattern that is likely to continue toward the end of the year, but this is not sustainable. We rather see this year’s drivers (particularly external demand) as continuing to produce effects next year also.

Romania’s agreement with the IMF reached a deadlock caused by the government’s plans to hike the car fuel excise tax. President Basescu opposes this and essentially accuses the government of trying to use the supplementary money for next year’s electoral campaigns. (This might, incidentally, be true.) But even Basescu stops short of pointing out the widespread tax evasion and corrupt public sector. The government itself admits the collection rate for VAT is as low as 50%, but plans for special moves in this regard. The corrupt public system has been used by all the political parties when in power and there are no grounds to believe that this will change soon unless judicial reforms are pursued under the pressure of EC’s cooperation and verification mechanism.

Key Points:

• In corporate news, Volksbank Romania has put up for sale a batch of non-performing loans (NPL) with a nominal value of EUR 600mn.

• Fitch rating agency has confirmed the ratings of three Romanian banks, including the largest two - BCR and BRD, it said in a statement. The third bank is Garanti Bank (Garanti Romania).

• It is not entirely impossible that consumption gains ground amid improved consumer confidence generated by visible reforms. But at this moment, given the political tensions and the decreasing predictability, it seems risky to ground growth scenarios on rising consumption.