Romania’s economy doing better than expected after surprisingly strong Q4

Romania’s economy doing better than expected after surprisingly strong  Q4
By Iulian Ernst in Bucharest February 17, 2021

BCR and ING Bank, two of the biggest financial groups in Romania, significantly improved their forecasts for the country's 2021 GDP growth in response to the above-expectations GDP growth announced by the National Institute for Statistics (INS) in Q4.

Romania’s seasonally adjusted GDP increased more strongly quarter-on-quarter than expected in Q4, growing by 5.3% compared to Q3, according to the flash estimate issued by the INS on February 18. 

This resulted in an overall economic contraction rate of only 3.9% for the full year 2020. In annual terms, the country's GDP was down only 1.7% y/y in the last quarter of 2020, a major improvement from the 5.6% y/y decline seen in Q3 and the 12.2% y/y plunge in Q2 during the lockdown.

"We have revised up this year's economic growth forecast to +4.2% from +2.7% mainly due to the statistically significant effect that the advance at the end of 2020 has on the GDP in 2021," BCR said in its note.

Despite lifting its forecast, BCR maintained one of the most pessimistic projections in the market.

“The economic growth in the last quarter of 2020 compared to the previous one (+5.3%) was well above our estimate and the median of the Bloomberg survey of +0.5%," BCR chief economist Ciprian Dascalu wrote in a note to investors.

He argued that the outstanding growth in Q4 came after the weaker-than-expected recovery in Q3 and this might explain the "surprisingly good performance in the last quarter of last year”. 

Statistically, high base effects such as those created by surprisingly strong growth in 2020 should be negative and not positive on future growth rates.

ING Bank also increased its 3.7% estimate for Romania's 2021 growth to 5.5% while maintaining the forecast for 2022 at 5.0%.

"Due to the significant carryover effect created by this fourth-quarter growth, the outlook for 2021 GDP is definitely shaping up to be much better than before. Looking beyond statistical effects, we believe that there are good prospects to see the economy back to pre-crisis levels as early as the third quarter of 2021," said ING Bank chief economist Valentin Tataru.

In separate news, a poll among Romanian managers revealed rising confidence.

Meanwhile, a poll among managers reveals increased confidence as the drop in revenues last year was only half as big as initially expected. Romanian managers estimate that their turnover will increase by 5% this year compared to the previous year.

Their confidence in the Romanian economy rose after their turnover declined by only half as much as the pessimistic expectations at the beginning of the pandemic, according to a Confidex poll conducted by Impetum Group in the fourth quarter of last year.

"Confidex shows us a more optimistic attitude of managers in the last quarter of 2020, mainly due to the halving of the losses estimated at the beginning of the pandemic. This will support the positive evolution of the economy this year. But optimism in the last quarter of last year could delay the companies in catching up to the new economy. It is a false goal to seek to return to the situation before the pandemic. Now the goal is to prepare for the new economy," said Andrei Cionca, CEO and co-founder of Impetum Group.

The Confidex index, which measures managers' confidence in the economy, rose from 41 in Q2 and Q3 to 45 in Q4, but it is lower (43) for small companies that have been more affected by the pandemic.