Romanian economy continues its decline

Everybody expected an economic recovery in the previous quarter, but the decline was intensified from -0.6 percent to -1.5 percent in the fourth quarter of 2009, as opposed to the third quarter of the same year.

The GDP dropped by 7.2 percent in 2009, thus making a U-turn, as against 2008 when the economy reached a maximum level. Following the surprise in the third quarter when the economy showed signs of recovery, most of the analysts improved their predictions regarding the last quarter of the year, anticipating Romania would escape the recession, Ziarul Financiar reports on Monday.

However, despite the optimistic expectations, the economy shrank at 1.5 percent in the last quarter, as opposed to the third, the decrease rate being accelerated in comparison with the one of the third quarter, of 0.6 percent. The drop in the fourth quarter was 6.6 percent from the same 2008 period.
While the figures regarding the economic evolution in the third quarter were characterized by the analysts as being ‘good news’, ‘the biggest surprise’ or ‘a ray of light in these dark times’, now the specialists’ opinions on GDP in the last quarter changed to ‘a negative surprise.’

‘The data may be considered a negative surprise from the economy’s shrinkage perspective, calculated against the previous quarter. (…) The massive exports and the stocks variations might have helped the economic growth in October-December 2009 to a certain extent. On the other hand, the households and governmental consumption remained low, as a result of the deteriorating labour market conditions and the constraints related to the public expenditure under the IMF and the European Commission Agreement,’ explained Eugen Sinca, BCR analyst.

The end of the year was marked by political instability, with the lack of Government lending leading to a postponement of the 2010 budget approval as well as the structural reforms, which caused delays in receiving the IMF and EC tranches of funding. The impact was visible at the foreign investors level, too.

The direct foreign investments dropped to 4.9 billion euros last year, half the value registered in 2008, while the Romanian external debt increased by 8.7 percent to 78.6 billion euros last year. Although the major economies have already emerged from recession, some of them as early as after last mid-year, a two or three month delay is forecast for Romania this year.
Most of the analysts estimate a 1-2 percent economic growth for this year, the recovery hopes being related to the industry and exports. With respect to the population consumption recovery and the trade recovery implicitly, there are no encouraging signs. Economic relaunch remains frail because of the unemployment rate increase, of curbed capital flows and the need for fiscal adjustments.

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