Romania Business Forecast Report Q1 2015

Date: December 12, 2014
Pages: 50
US$ 1,195.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download

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Core Views

Romania’s economic recovery will outperform most regional peers and move onto a firmer footing over the coming quarters. We expect household and government spending to play an increasing large role driving growth, while weak eurozone demand limits exports’ ability to continue underpinning the recovery. W hile steady imports and overseas profit repatriation will widen Romania’s current account deficit in 2015 and 2016, a stable funding structure means this will not pose a threat to the country’s economic recovery.

Subdued inflation, weak bank lending and declining demand from core eurozone economies will keep the National Bank of Romania in dovish mode in 2015.

Romania’s government are likely to ease up on the pace of fiscal austerity in 2014 and 2015, but will remain within EU budget and public debt targets.

Major Forecast Changes

Softer demand from eurozone economies means we expect export growth to stutter over the coming quarters. Accordingly, we have revised down our forecasts for the current account to come in at 2.1% of GDP, from 1.9% previously.

We have revised-down our forecasts for the policy rate to 2.50% by end-2015, from 2.75% previously, due to lower than expected food price inflation.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook


SWOT Analysis
BMI Political Risk Index
Domestic Politics
Victory Of Iohannis Suggests Greater Uncertainty
The shock victory of opposition candidate Klaus Iohannis in Romania's presidential election will prevent the ruling Social Democratic Party (PSD) tightening its grip on power. Although this implies that further disputes between Prime Minister Victor Ponta and the president are likely, Iohanni s' s pro-business stance means his win will be well received by investors.
  Table: Politica l overvie w
Long-Term Political Outlook
Balancing The Demands Of West/East Influence
The strength and quality of Romania's political institutions fall short relative to much of Europe, implying significant challenges ahead despite the progress made since the fall of communism. With membership of the euro still looking like a distant prospect, and EU influence on Romania's political trajectory at risk of slowing, there is a growing risk of institutional stagnation, which could jeopardise some of the improvements made over the last two decades.


SWOT Analysis
BMI Economic Risk Index
Economic Activity
Moving Towards A Domestic-Driven Growth Model
Romania's economic recovery will outperform most of Emerging Europe in 2015 and 2016, as the country moves towards a more domestic demand driven growth model. Ailing eurozone demand will prevent a return to pre-crisis growth rates.
  Table: Economic Activit y
Balance Of Payments
Few Risks From Wider Current Account Deficits
While steady imports and overseas profit repatriation will widen Romania's current ac count deficit in 2015 and 2016, a stable funding structure means this will not pose a threat to the country's economic recovery.
  Table: Balance Of Payments
Fiscal Policy
Looser Fiscal Policy Poses Few Risks
The Romanian government will pursue a more expansionary fiscal stance in 2015 and 2016. This should help support real GDP growth, without materially damaging the country's credit risk profile.
  Table: Fiscal Policy
Monetary Policy
Central Bank To Remain Dovish In 2015
Subdued inflation, weak bank lending and d eclining demand from core eurozone economies will keep the National Bank of Romania in dov ish mode in 2015.
  Table: Monetar y Polic y
Exchange Rate Policy
RON: Stable Outlook For The Leu
The Romanian leu will remain one of the most resilient currencies in emerging Europe over the coming months, as portfolio investment inflows into Romani an local debt markets rema in strong. The exchange rate will remain broadly stable over 2015 and 2016, as demand for debt is offset by monetary easing and the country's deteriorating balance of payments position.
  Table: BMI Curenc y Forecast
Banking Sector
Banking Sector: On A More Solid Footing
Robust capital buffers and lower exposure to deleveraging parent banks means the Romanian banking secto r will move onto a firmer footing in 2015. Bank profits will benefit from less capital provisioning as asset quality stabilises, alongside a pickup in household loans.


The Romanian Economy To 2023
Major Untapped Growth Potential
While Romania will struggle to return to pre-crisis growth rates over the next decade, we believe the country's economy has significant regional potential. We forecast 10-year real average annual growth of 3.6%, with the country's competitive labour force likely to drive growth and attract investment over the next few years, despite ongoing political inefficiencies and the sluggish pace of the eurozone economic recovery.
  Table: Long -Term Macroeconomic Forecasts


SWOT Analysis
Operational Risk Index
  Table: Operationa l Risk
Transport Network
  Table: Transport Net work Risk
Economic Openness
  Table: Economic Openes
  Table: Top 5 Product Exported (USDmn )
  Table: Top 5 Trade Partners Product Imports (USDmn )


  Table: Energy & Utilities Infrastructure Data
  Table: Energy & Utilities Infrastructure Data
Oil & Gas
  Table: Oil Production
  Table: Oil Production
  Table: Gas Production
  Table: Gas Production
Other Key Sectors
  Table: Pharma Sector Key Indicators
  Table: Telecoms Sector Key Indicators
  Table: Defence and Securit y Sector Key Indicators
  Table: Food and Drink Sector Key Indicators
  Table: Autos Sector Key Indicators
  Table: Freig ht Key Indicators


Global Outlook
Warning Signs Growing
  Table: Globa l Assumptions
  Table: Deve loped States , Rea l GDP Gro wtH , %
  Table: Emerging Markets , Rea l GDP Gro wth, %
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