Lucian Anghel, BCR: The exit from the recession, a difficult process marked by unpopular measures

We are beginning to see the light at the end of the tunnel, but that does not necessarily mean we don"t have more to go, said Lucian Anghel, chief-economist of the Romanian Commercial Bank, when presenting the macroeconomic report "Romania - Under the sign of austerity". According to the study in question, Romania could see a very frail economic growth in 2011, of 1.2%, after two years of decline where the economy shrank around 9% in real terms. Lucian Anghel considers that the exit from the recession will be difficult and marked by unpopular measures which the government will need to implement in order to succeed in reaching the budget deficit target of 4.4% of the GDP.

Even though predictability isn"t exactly Romania"s strong point, the estimates by BCR are taking into account a strong base effect next year, as well as the fact that none of the major investors left the country during the crisis. Lucian Anghel sees a growth potential of 3-3.5% on the medium to long term for Romania.

The report by BCR shows that there are several elements which will be crucial in attracting new direct foreign investment, such as: a stable domestic environment, an increase in the rate of absorption of European funds and the implementation of the structural reforms included in the current and a potential new agreement with the International Monetary Fund and the European Union to resume sustainable economic growth.

• BCR expects inflation to drop by half

"Inflation could halve at the end of 2011, after the shock generated by the raise of the VAT in 2011 will have gradually worn off", said Lucian Anghel. He said: "In a moderate scenario, which takes into account a good harvest, and implicitly a favorable effect on volatile prices, inflation could be seen at the upper range of the inflation target of the central bank; otherwise, we expect to slightly exceed the 3% target +/- one percent".

• Stable evolution of unemployment

According to the study by BCR, the unemployment rate was relatively stable, in spite of the economic crisis. "The circumstantial polls expect a moderate decrease in the number of employees in the processing industry, construction and services sectors in the 4th quarter of 2010 and under these circumstances we do not rule out a slight recovery in the rate of unemployment to 7.1% at the end of December. The government needs to continue with the restructuring process of the public sector, and the private sector, may begin a new process of downsizing", the quoted report states. Lucian Anghel claims that one of the signs that the economy has exited the recession is the increase in the number of employees in the private sector.

• The Central Bank may relax its monetary policy

The Romanian Central Bank may resume its cycle of relaxation of the monetary policy in 2011 if inflationist pressure decreases, and Romania concludes a new agreement with the IMF, the report by BCR says. Its analysts expect a 0.5% cut of the policy rate, to 5.75%, until the end of 2011, as well as a reduction of the size of the minimum required reserves, with the most likely case being a cut of at least 5% of the minimum required reserves in foreign currencies.

The BCR report also states: "Even though lending will never return to the exuberance which defined the 2007-2008 years, it may see a growth in the single digits in 2011. It is very likely that in the future mortgage loans and loans for corporate investments will play an important role, whereas the weight of consumer loans will decrease.