2013 outlook: Romanian currency strengthening, encouraging economic prospects

“Romania's economic prospects are particularly encouraging,” said Greg Konieczny, Executive Vice President of Templeton Emerging Markets Group and Fund Manager of Romanian investment fund Fondul Proprietatea. In an outlook for Romania in 2013 released January 21, Greg Konieczny suggests that Romania is in a good position to outpace the EU for economic growth this year, as well as predicting GDP advance of greater than 1 percent in 2013. The outlook indicates that although the economy is promising, negative views are still prevalent in Romania. Several factors are identified as positive signs for Romania, including relatively low levels of public debt to GDP, some 33.3 percent and well below the 82.5 percent EU average. Exports, with falling demand from the eurozone, are set to be replaced by domestic demand and local investments as drivers for growth. The low unemployment level is another plus point for Romania's economy in 2013, according to Mr Konieczny. The outlook also predicts higher EU funds absorption rates in 2013, which will in turn drive investments, cause growth and create jobs. Some risks are outlined, including the end of the current Standby Arrangement with the International Monetary Fund (IMF), the European Commission and the World Bank. Romania is due to pay back some EUR 5 billion in loans. Franklin Templeton Investment Management believes that it is important for Romania to secure a new IMF deal this year, giving three main benefits for a new agreement. First, to provide a financial “safety net” in case the international financial situation gets difficult. Second, a new deal would encourage what are described as essential reforms in various sector and thirdly, a new IMF agreement would boost investor confidence in Romania. Another worry for the fund manager of Romania's Fondul Proprietatea is government will to implement reforms. The landslide election victory for the Social Liberal Union (USL) is judged as having had a stabilizing effect on the political scene after last year's political crisis. However, the outlook suggests that the size of the USL's mandate could reduce pressure on the government to implement reforms quickly. As well as predicting greater than 1 percent GDP growth in 2013, the outlook also foresees a strengthening of the Romanian leu against the euro. “If Romania’s solid fundamentals are coupled with the Government’s willingness to implement reform, we believe it has the potential to become one of the leaders of economic growth within the European Union,” said Greg Konieczny. Franklin Templeton Investment Management manages Romania's largest investment fund, Fondul Proprietatea. As of September 30 last year, the Fondul Proprietatea's portfolio included stakes in 69 companies, 25 listed and 44 unlisted. The fund’s portfolio is focused on the electrical energy sector, oil and natural gas – around 88 percent of its net assets. The biggest unlisted company in its portfolio is Hidroelectrica, while the biggest listed company where Fondul Proprietatea owns shares is OMV Petrom. Fondul Proprietatea was created in 2005 as a joint stock company with a special purpose to provide compensation to people whose real estate assets had been confiscated by the Romanian state during the communist regime and who can no longer receive restitution in kind. The Romanian investment fund posted a profit of around EUR 128 million in 2011, and is listed on the Bucharest Stock Exchange, symbol FP.