Citi: Choice For Romanian-Made Products Could Support Recovery

Although domestic consumption is decreasingly abruptly, Romanians prefer to consume Romanian-made products, rather than imported products, which could help the country achieve economic growth in the next quarters, according to Citi analysts. They announced that they maintained their (-)7.1% forecast for the Romanian economy at the end of 2009, after the National Statistics Institute (INS) had revised the economic performance of the country in the second quarter of 2009 compared to the second quarter of 2008 from (-)8.8% to (-)8.7%.

According to INS, private consumption lost 13.2% year-on-year in the second quarter of 2009, which is the third consecutive quarter when the decrease in consumption had a significant influence on the GDP. The information was interpreted by Citi analysts as an attempt of the consumers to balance their budgets after a debt-based consumption boom.

A 4.5% industrial recovery in the second quarter, amid higher exports and a substation of imports with Romanian-made products, was a surprise to Citi analysts. While exports decreased by only 12.2%, imports plunged 26.9%. Services remained at the level recorded in the first quarter, while the other sectors continued to decline. The construction industry led the decline with 11%.

"Although the data published by the INS are very poor, we see a positive signal in the power of the local industry, which could stimulate recovery in the second half of the year," Citi analysts wrote.

• Citi forecasts key interest rate at 7.25% per year.

Citi analysts expect the very low domestic demand to make the central bank more confident. "This and the financing package from the IMF and the EU, as well as the adjustment of the foreign deficit above expectations, may encourage the National Bank of Romania to be more aggressive in relaxing the monetary policy rate in the remainder of the year," the Citi report further indicates.

According to Citi analysts, the National Bank will reduce the key rate to 7.25% per year from the current 8.5% until the end of 2009. The Government is currently considering an economic decline of 8.5% for the entire year 2009. The GDP is expected to reach 497.3 billion RON (118.4 billion EUR at an estimated average exchange rate of 4.2 RON/EUR).

After the publication of economic indicators for the first quarter of 2009, Citi estimated a 6% decline in Romania"s GDP for 2009.