EBRD: Romania Has Passed The Worst, But Recovery Will Be Slow And Patchy

Romania has passed the peak of the crisis and the economic condition has stabilized lately, European Bank for Reconstruction and Development (EBRD) Chief Economist Erik Berglof stated yesterday during a roundtable of the ministers in charge of economic sectors in the countries of the Central European Initiative. He presented the EBRD Transition Report 2009, which contained the EBRD forecast that Romania would experience an 8 per cent decline in GDP and an inflation rate of 5.3 per cent.

In Berglof"s opinion, Romania has passed the worst this year and is currently experiencing some economic stabilisation, but recovery will be "slow and patchy." The EBRD has forecast an increase in the Romanian GDP of up to 1 per cent, but that does not mean that the unemployment rate, the volume of bad loans and the number of SMEs in distress are not going to rise any more, Berglof stressed.

The EBRD estimates for Romania also include a decline in the volume of foreign direct investments to 4.9 billion USD in 2009 from 13.5 billion USD in 2008 and an inflation rate of 4 per cent in 2010.

EBRD Chief Economist Erik Berglof commented that the Romanian banking system had proven to be sound and stable during a year of extreme difficulty. In his opinion, the leading banks and the banking system regulatory authority had reacted properly to the financial crisis. The Romanian banking system is generally well capitalised and maintains adequate liquidity ratios. Nine parent banks of as many Romanian-based banks, totalling over 70 per cent of the Romanian banking capital, have committed to maintain their exposure on Romania, which, in Erik Berglof"s opinion, is a key factor of confidence in the future development of the country.

Erik Berglof stressed that the notable increase in the volume of bad loans was partially a consequence of the fact that most loans were denominated in EUR, while the borrowers earned RON. The depreciation of the national currency against the euro further inflated the volume of bad loans.

According to the EBRD Transition Report 2009, Romania"s medium-term outlook is favourable and growth will be encouraged by a diversified export breakdown, a strategic geographical position and a strong potential to catch up with the developed countries in Europe.

EBRD officials maintain relatively optimistic forecasts on Romania"s economic performance, despite ongoing political turbulence and the prospect of delays in the disbursement of the following loan tranches from the IMF and the European Commission. EBRD Chief Economist Erik Berglof believes that such financing will cause some difficulties in the Romanian economy, but no critical consequences should be expected. In his opinion, Romania"s primary priority should be to set up a stable Government and continue reform. He took positive note of the Parliament"s decision to exceptionally allow the recently dismissed Government to draft the State Budget 2010.