Moody’s: Romania’s economy likely to grow 3-4pc per annum

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Moody’s Investors Service rating agency expects Romania’s recovery path to be gradual. Economic growth is unlikely to reach pre-crisis rates for sustained periods, especially if European economic growth remains muted.

A more normal long-term growth rate for the country is probably 3-4 percent per annum, bearing in mind that there are still several obstacles to rapid growth in Romania, particularly a heavy structural reform agenda and lacklustre infrastructure, says Moody’s.

On the other hand, the recession, coming after an extended, credit-fuelled boom, could be more protracted than expected and cause serious economic dislocation.

Output will need to re – orientate towards tradable goods and services, which means that corporate insolvencies and unemployment are likely to continue to rise for some time, says the agency.

According to Moody’s, it is uncertain how the existing dynamic will interact with a planned fiscal consolidation, a weakened banking system and a slower recovery of the main European economies.
Moody’s is expecting Romania’s economy to contract 7-10 percent before recovering in 2010.

The private sector in Romania is less indebted and the flexible mechanisms of the exchange rate is said to help adjust the trade balance, which makes Moody’s conclude that the resumption of Romania’s economic growth will be quicker than in the case of other countries in the region, such as Bulgaria, or the Baltic states.

A significant depreciation of the local currency, the leu (RON), will have serious consequences on Romania’s economy and the banking system, because nearly 60 percent of the private sectors’ loan are denominated in foreign currency.

Moody’s also estimates that in the case of a financial contagion from other Eastern European countries, the International Monetary Fund and the European Union will increase the funds earmarked for Romania to buttress its balance of payments and prevent further worsening of the crisis.

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