Coface: Local economy down 2 percent this year

Romania's economy will drop by 1.5 to 2 percent this year, according to a recent estimation by Coface. Its previous prognosis pointed to an economic growth of 0.5 percent. “2010 is more difficult than 2009, this has become a certainty. Despite initial estimations for a revival and a timid increase in the second half of the year due to an increase of demand from external partners, the austerity measures will trigger a GDP contraction of 1.5 to 2 percent compared to 2009,” according to Coface. GDP dropped by 7.1 percent in Romania last year in the previous, after several years of economic growth in the country. The VAT increase seems to be destined to fail, because it doesn't guarantee an increase in revenues, says Coface. The drop in consumption will decrease the taxation base. What is certain is the negative effect on companies and consumers. Companies will try to use new restructuring measures and decrease their costs, which could trigger a higher number of unemployed from the private sector. An increase in fiscal evasion and a comeback of the underground economy are also expected, according to Coface. All these will likely keep the budget revenues under the targeted level. 2010 could bring more bankruptcies from the trade industry and overall it could be the year with a historical maximum in terms of bankruptcies in Romania.