Romania Country Report - March, 2014

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Romania Country Report - March, 2014

This report covers the main Romanian macroeconomic releases of March 2014 as well as financial and political trends in the country during this period. The short-term indicators released during the period refer mainly to January to February period of this year.

February industrial output and exports figures, released in early April, have brought optimism among analysts -- who upped their forecast for this year toward 3% and even more. Constructions sector lags behind, but the activity in this sector is seasonally weak. On a positive note, constructors express moderately optimistic views despite the sharp activity decline indicated by the official figures.

Besides industrial output and exports, retail sales and wages have also improved in January to February thus supporting positive expectations created in Q4 last year.

Romania’s statistics office has confirmed the 3.5% year on year GDP growth for 2013 and operated some revisions, under the second preliminary estimates. The contribution to the GDP growth was upward adjusted for domestic demand – for both consumption [from 0.3pps to 0.6pps] and gross fixed capital formation [from minus 1.5pps to minus 0.9pps]. Exports’ contribution was also upped from 4.1pps to 4.4pps.

The IMF has maintained its 2014 GDP projection for Romania to 2.2% under the latest World Economic Outlook even if downgrading the prospect for whole Emerging and Developing Europe* to 2.4% from 2.7% under the previous version of WEO dated October 2013.

Key Points:
• Industrial Expansion continues: Industrial output up 8.8% year on year in February 2014; by 9.5% year on year in January to February
• Exports up 12% year on year in February but trade deficit still widens
• Private Consumption Rises: Retail sales up 8.7% year on year in Feb and by 7% year on year in January to February; Services deliveried to households up 10.1% year on year in February
• Headline inflation remains around 1% year on year in March 2014
• January to February budget deficit up 25% year on year to 0.46% of GDP. Main problems are on the collection side.
• Romania’s non-performing loans ratio up 3.65pps year on year to 22.31% at end of January. Romania to draft NPL resolution strategy by end of May, under IMF stand-by deal
• Bank loans shrink 2% year on year at end of February, local currency lending gains ground slightly. Credit dynamics in Romania to turn positive in several months – c-bank governor.


Table of Contents

EXECUTIVE SUMMARY 5
Growth Outlook Improves after bright Jan-Feb data release 6
Bank analysts expect GDP growth above 3% this year 6
RELATIONSHIP WITH IFIs 6
IMF endorses two reviews of Romania's stand-by arrangement 6
POLITICS 7
REFORMS IN JUDICIARY SYSTEM YIELD DIVIDENDS 7
Former head of Romanian restitution body under investigations for EUR 1mn bribe 7
Head of Romania's Trade Chamber detained in police custody for alleged corruption 7
Former Romanian economy minister sentenced to four years in jail 7
REAL SECTOR 8
1. Corporate, structural reforms 8
2. GDP, forecasts 9
IMF keeps 2014 GDP projection for Romania unchanged at 2.2% 9
2013 GDP growth confirmed at 3.5% 10
Net exports have contributed essentially to 2013 growth – but private consumption also. 10
3. Industry, Constructions, Retail 11
Industrial output up 8.8% y/y in February 2014 11
Primary energy use up 5.5% y/y in Jan-Feb 2014 12
Electricity use down 0.3% y/y in Jan-Feb 12
Construction works down 14.6% y/y in February 2014 13
Retail sales up 8.7% y/y in February 2014 14
New car sales up 20% y/y in Q1 2014 14
Romania’s services deliveried to households up 10.1% y/y in February 2014 15
4. Prices, Inflation 15
Headline inflation remains around 1% y/y in March 2014 15
Industrial prices down 1.2% y/y in February 16
5. Labour Market 17
Wages up by real 3.7% y/y in Jan-Feb 2014 17
ILO unemployment slightly down to 7.2% in February 17
FISCAL SECTOR 18
President Basescu says government, IMF use wrong fiscal policies 18
1. Budget Execution 18
Jan-Feb budget deficit up 25% y/y to 0.46% of GDP 18
2. Fiscal Policy, Public Debt 19
Romania to issue 10-year Eurobond within two weeks – sources, April 6 19
Romania’s public debt hits 38.7% of GDP under ESA, up 2.6pps y/y at end-Oct 20
FINANCIAL SECTOR 21
Local currency weakens by real 1% m/m, 1.7% y/y in March 2014 21
Romania to draft NPL resolution strategy by end-May, under IMF stand-by deal 21
Romanian central bank keeps policy interest rate unchanged at 3.5% 22
Credit dynamics in Romania to turn positive in several months – c-bank governor 22
Assets of open-end funds see steepest quarterly rise in Q1 2014 22
1. Bank Loan Quality. 23
Romania’s non-performing loans ratio up 3.65pps y/y to 22.31% at end-Jan 23
Overdue payments on Romanian bank loans up 9.3% y/y to EUR 7.53bn at end-Feb 25
2. LOANS, DEPOSITS 25
Romania’s bank loans shrink 2% y/y at end-Feb, local currency lending gains ground slightly 25
Stock of deposits in Romanian banks up 10.7% y/y at end-Feb 26
3. CORPORATE 27
Insurance market shrinks to 1.3% of GDP in 2013 27
Romania's largest insurer Astra needs EUR 110mn capital hike 28
UniCredit Tiriac Romania takes over UniCredit's local leasing arm for EUR 15mn 28
EXTERNAL SECTOR 28
1. Balance of Payments 28
12-month C/A gap widens to 1.3% of GDP at end-Feb 2014 28
2. Foreign Trade 30
Exports up 12% y/y in February but trade deficit still widens 30
3. External Debt 31
Gross external debt down 6.5% y/y to EUR 94bn at end-Feb 2014 31
4. Forex Reserves 32
Romania’s forex reserves down EUR 377mn to 15-month low in March 2014 32


Table 1: : Industrial production [%, y/y] 11
Table 2: Construction Works Volume Index [%, y/y] 13
Table 3: Retail Sales Volume Index [% y/y] 14
Table 4: Consumer, Producer Prices [%, y/y] 16
Table 5: Wages, employment 17
Table 6: General government budget [RON mn] 19
Table 7: Public Debt [ESA methodology.] 21
Table 8: Aggregate indicators for credit institutions [eop, unless otherwise indicated] 23
Table 9: Quality of the stock of bank loans [eop, RON mn unless otherwise indicated] 24
Table 10: Current Account [EUR mn] 29
Table 11: Romania CA balance Jan-Feb 2014 30
Table 12: Foreign trade [EUR mn] 31
Table 13: External debt [EUR mn] 32


Fig. 1: Seasonally adjusted GDP 10
Fig. 2: Drivers of GDP growth, utilisation side [main elements] 10
Fig. 3: Drivers of GDP growth, utilisation side [detailed] 10
Fig. 4: Drivers of GDP growth, formation side 11
Fig. 5: Industrial production [2010=100] 11
Fig. 6: Industrial Production, seasonally & workday adjusted [2010=100] 12
Fig. 7: Industrial Production Volume Index, incl. 12-month average % y/y 12
Fig. 8: Construction Works Index [2010=100] 13
Fig. 9: Construction Works, seasonally & workday adjusted [2010=100] 13
Fig. 10: Construction Works Volume Index, incl. 12-month average % y/y 13
Fig. 11: Retail Sales Index, seas. adj. [2010=100] 14
Fig. 12: Retail Sales Volume Index, [2010=100] 14
Fig. 13: Consumer Price Index [y/y] 15
Fig. 14: PPI vs. CPI [y/y] 16
Fig. 15: Average net wage [2000=100] 17
Fig. 16: Employment vs. unemployment 17
Fig. 17: Public debt [EUR mn; national meth.] 20
Fig. 19: Net profit vs. provision cost [EUR] 23
Fig. 20: Prudential value adjustments [RAS provisioning cost] [EUR mn, quarterly] 24
Fig. 21: Bad loans [EUR] and NPL ratio 24
Fig. 22: Overdue payments on bank loans 25
Fig. 23: Stock of bank loans [EUR mn] 25
Fig. 24: Non-government deposits 27
Fig. 25: C/A deficit in rolling 12M 29
Fig. 26: Foreign trade balance [EUR mn] 30
Fig. 27: Rolling 12M exports [EUR mn] 31
Fig. 28: FOB exports vs. imports [EUR mn] 31
Fig. 29: Exports [EUR mn] 31

Number of pages: 32
Release Date: Mon, 14 Apr 2014