Raiffeisen chief-economist: Economic policies have to boost saving money

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Economic policies have to boost the saving of money, said on September 15, chief economist of Raiffeisen Bank Ionut Dumitru, who made a presentation of the sustainability of the current account deficit of Romania, at a Young Economists conference.
In his opinion, currently, the interests granted by banks are very stimulating, they are „a little bit higher than a neutral interest.”
 
Dumitru explained that in Romania, the saving rate is low, but stable, with incomes being relatively low, oriented to consumption and not to saving. According to his presentation, the highest value of the rate of public saving over 2003-2007 was in 2006, when it stood at 2.6% of GDP, in 2007 is stood at 1.2% of GDP, and in 2005 at 1.8% of GDP. As for the rate of private saving, it stood at 14.4% of GDP in 2007, on a continuous rise from the previous years.
 
Dumitru said that in Romania, the investment rate is high and on the rise, in 2007 it stood at 3.6% of GDP in the public sector, at 26.0% of GDP in the private sector. Consequently, at the end of 2007, a deficit of current account of 14% of GDP resulted.
A current account deficit on the rise reflects the deterioration of the saving-investment balance, it is generated by the private sector first.
 
According to the chief economist of Raiffeisen Bank, the main branches generating trade deficit are those of mechanical and electrical devices, devices for sound recording and playing and image capturing and playing, mineral and chemical products. The first branch leads to a trade deficit of some 5% of GDP, because it reflects a very high investment need, the second leads to a deficit of some 3.3% of GDP. The sector of chemical products generates a trade deficit of some 2.3% of GDP, and that of pharmaceuticals contributes around 50% to the trade deficit, or 1.1% of GDP, due to high imports of medicines.
 
The deterioration of the trade balance comes also from farming, Romania being a net importer of agri-foods, with its agriculture used not much enough.
„If the agricultural sector were better used, we could have an surplus”, Ionut Dumitru said.
According to him, the balance of revenues could contribute the most to the current account deficit in the years to come, repatriated profits and dividends paid to foreign investment could rise due to the high foreign direct investment and the experience in other countries in Central and Eastern Europe.
 
The positive contribution of current transfers also fell in the past years, the remittances slowed down, against the background of the problems surfaced in the labour market in Spain and Italy. In addition, Romania’s contribution to the budget of the EU (around 1% of GDP in the coming years) and the fact that most funds attracted from the Union will be registered in the capital account will lead to a diminution in the positive contribution of current transfers in the current account.
 
Although the current account deficit got stabilized in the past three quarters to 14% of GDP, there are risks, Dumitru believes, for it to grow. Among risks, Dumitru mentioned the possible economic slow down or even recession in the euro area and the strong slow down of the economy of Spain, of the sector of constructions in this country first, which would lead to a slow down in the current transfers from Romanians working abroad.
In 2007, Romania, Bulgaria and the Baltic states registered an excessive current account deficit.
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