COFACE: Romania"s economy could grow 1% in 2010

• Number of bankruptcies could increase

Romania"s economy could see a modest recovery, with an expansion of around 1%, in 2010, after a 7% decline in 2009, with the main short terms growth factors being exports and industrial output, estimates Cristian Ionescu, country manager with Coface Romania.

He said yesterday in a press conference:

"In 2010, macroeconomic stability will continue to be extremely dependent on government performance and on the ability of the Executive to comply with the terms of the agreements concluded with the financial institutions. The injection of liquidity from the IMF will ensure Romania"s short term domestic stability, and will protect the domestic currency".

Cristian Ionescu warned however that as unemployment increases, private spending and consumer confidence will remain low. "A recovery in domestic demand could be seriously hindered by the limitation in budgetary policy and the deterioration of the domestic environment", the Coface official said.

According to Coface, at this time, Romania has the following weaknesses: the government"s weak reaction in the to the rising foreign and domestic imbalances and its populist policies which put pressure on public expenses, increasing reliance on foreign capital inflows, high current account deficit, the high degree of foreign currency debt of the private sector and the high vulnerability of the latter to foreign exchange rate volatility.

According to Coface, "Romania"s major risk factors for 2010, come from the instability of the political environment, which can lead to a failure to meet the agreement with the IMF, from the inadequate government programs, or from disconnected economic and fiscal policies (raising taxes)".

On a different note, Coface states that this year, the number of bankruptcies will increase by about 15-20% compared to 2009, when about 19,500 companies went bankrupt (30% more than in 2008).

"The number of bankruptcies will increase 15-20% in 2010, especially in the first half of the year, because many of these bankruptcies were not pronounced by the courts in 2009, due to the judges" strike", said Cristian Ionescu. The industries which were hit the hardest include: IT equipment distribution, textiles, metallurgy, retail and transports, and the main risk for Romanian companies is lack of funding.