BRD-SocGen expects Romania’s GDP to shrink by 3.9% this year

Romania’s economy could experience a sharp contraction of -7% this year, under the worst case scenario, according to a report compiled by BRD-SocGen, the third-biggest local lender by assets, local Hotnews.ro reported.

Under the basic scenario, Romania’s GDP would drop by 3.9% this year while, under the most optimistic scenario, there would still be a decline of 0.5%.

The central bank’s decision to cut the refinancing interest rate will not allow companies to obtain the huge liquidity they need on the spot, the authors of the report warn. While local companies need liquidity immediately, the central bank has acted rather with a medium-term view by taking the package of measures aimed at increasing the liquidity (by cutting the refinancing rate by 0.5pp and Lombard rate by 1pp), the authors of the report argue.

Under the baseline scenario, considering that the Eurozone will enter the recessionary territory in 2020 - the coronavirus pandemic came at a time when Germany was already in a fragile state - BRD-SocGen assumes a double-digit contraction for the industrial sector in Romania.

The production sector in Romania (responsible for 80% of the gross value added from the industry) is exposed in particular to the slowdown of global trade flows and economic activity, given the significant role played by export-oriented subsectors (automotive and related industries) and export dependence on the euro area (42% of RO exports go to Germany, Italy and France).

The construction sector started the year on a solid basis and BRD-SocGen believes that the dynamics for the whole of 2020 could remain positive, but considerably weaker. The services sector, among the main growth drivers recently, could see divergent dynamics among its segments.

With the exception of IT&C and public administration, health and social assistance, which are likely to continue to show positive dynamics, the other sub-sectors will experience contractions ranging up to -25% (entertainment, cultural and recreational activities). Net taxes could also suffer a contraction similar to that of the previous financial crisis (up to 15%).

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