Occasional commentator on money, business and politics in Romania, the Financial Times blog Beyond Brics has been looking at the country’s economic health and provided a new, lowest so far forecast for GDP growth this year – just 0.2 percent.
The article is, however, not a sombre warning of financial doom, quite the opposite, and it comes in response to the upgrade of Romania’s sovereign credit worthiness by one notch, taking the medium term rating to investment grade.
The new rating from US based information service IHS Global Insight joins Moody’s and Fitch rating in putting Romania at investment grade and of the major ratings agencies it is now only Standard and Poor’s that gives the country junk status, albeit the highest notch in the category, which presumably makes it the very best kind of junk. The Financial Times points to the much narrowed fiscal and trade deficits as important and very positive factors in the article ‘Romania: doing OK but for how long?’
Romania is considered to be in good shape compared to its neighbors and the economist from IHS Global Insight quoted in the article believes if Europe returns to growth in 2013, Romanian exports will rise and Foreign Direct Investment flow in.
The Financial Times does, however, present another far less rosy picture, quoting Peter Attard Montalto from financial services group Nomura. “A sharp downturn is inevitable before any modest improvements can be expected next year,” reads the Financial Times article. Exports slipping to near zero growth is given as a “critical” factor. This, according to Montalto, will lead to less domestic consumption and less investment. The 0.2 percent 2012 GDP growth figure comes from Montalto, who also predicts 1.2 percent growth in 2013. The figure is much lower than the estimates from both the Romanian authorities and the major financial institutions.
At the start of the year, Romania’s government was predicting 1.8 – 2.3 percent GDP growth, this was revised down to 1.5 percent after discussions with the International Monetary Fund (IMF), which made the same forecast. Later, 1.2 percent became the most popular figure and at the end of July the European Bank for Reconstruction and Development predicted just 0.8 percent real terms GDP growth in 2012.
The Financial Times also raises the threat of economic fallout from the political crisis, which has seen President and Prime Minister fighting it out all summer. The good news is perhaps that so far, the economic damage feared as a result of political crisis has not really materialized, spending programs have been maintained, IMF commitments honored and reforms continued.
The only really noticeable exception is the value of the leu, Romania’s currency, which has set a series of record lows during the political crisis. But the warning is that any backsliding will affect the country’s credit worthiness. The Financial Times says “Romania needs to hang on and hang in there, or all the good achieved thus far could yet come undone.”
Liam Lever, email@example.com