Romania’s current account deficit shrinks, FDI collapses in H1
Romania's current account deficit decreased by 20% (EUR 876 mln) to EUR 3.49 billion in the first half of the year.
The net import of goods increased by nearly 15% (EUR 1.13 bln) to EUR 8.81 bln. Still, it was offset by the 9.2% (EUR 376 mln) stronger net export of services, 19% (EUR 436 mln) smaller outflows of secondary incomes and, most importantly, 28% (EUR 1.3 bln) smaller outflows of primary income - which stand for the interest and dividends repatriated by foreign financial and direct investors.
The last element made a significant impact. It was prompted by smaller interest rates (interest) and foreign-owned companies reporting lower profit (dividends) because of either tougher financial situation or deferred reporting of profit under a Government's allowance.
However, smaller dividends reported by FDI companies have, on the other hand, pushed down the value of the foreign direct investments in the first half of the year since the profits of the FDI companies, unless repatriated, are counted as new FDI. Indeed, the FDI inflows were reported at EUR 352 mln in the first half of the year, down from EUR 2.7 billion in the same period last year.
"The trade deficit with goods intensified by 14.7% at six months, an evolution influenced by the need for equipment to counteract the health crisis", commented Andrei Rădulescu, head economist at Banca Transilvania.
"The figures show the adjustment of the current account deficit (in year-on-year terms) for the fifth month in a row in June, in the context of the incidence of the pandemic (a shock to international trade) and its consequences (increased savings rate). Also, foreign direct investments recorded positive values for the third month in a row in June, which confirms the fact that the domestic economy has exceeded the critical point of the pandemic-induced shock and is heading towards a new economic cycle," said Andrei Rădulescu, quoted by Ziarul Financiar.
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