Moody"s: Recession To Hit Romania In 2009

Moody"s has released a forecast which indicates that Romania will go into recession next year, prompting Romanian officials to quickly refute such scenario, because they deemed it impossible to sink from a 9.1% economic growth in 2008 to a -0.3 recession in 2009. After both Standard & Poors and Fitch downgraded Romania out of the investment grade tier, Moody remains the only international rating agency not to have done so. Moreover, the agency maintained a stable outlook arguing that potential financing problems would be solved with help from the IMF or the EU. Prime Minister Calin Popescu Tariceanu commented that Moody"s was insufficiently familiar with the Romanian economy. He stressed that the EU"s 4.9 economic growth forecast for Romania was more objective a reference. In his opinion, Romania"s economic growth will be smaller in 2009, but still well above Western Europe and other developed areas.

In turn, Moody"s Kennet Orchard explained the recent forecast arguing that a weaker global economy would hamper lending and consumption in Romania, too, so the future Government will have to tighten fiscal policies as a response to the drastic changes in the international arena. According to him, the Euro Zone and some of the neighbouring countries are going into recession and liquidity is quite low on the international markets, so lending will be seriously affected. After the parliamentary elections, the new Government will have to tighten fiscal policies. Altogether, these factors could lead to a recession.

Moody"s estimates that Romania"s GDP will decrease by 0.3% in 2009, but accurate estimations are hard to produce because of the uncertainties about the world economic conditions, Orchard further added. The sudden economic slowdown will affect salaries in the public sector, which would prompt the new Government to cancel the application of some of the electoral promises that involve public spending. Moody"s anticipates that Romania will have a budget deficit of 4.9% of the GDP in 2009, because the next Government will become aware of the net decrease in revenues and will have no choice, despite the spending cuts. In Orchard"s view, Romania must be less preoccupied with deflation and more with economic growth, so the central bank will eventually reduce the key interest. On the bright side, the decrease in domestic demand will have positive effects on inflation and the foreign deficit. Thus, the inflation rate will decrease to 4.5% at the end of 2009, compared to 7.4% in October 2008, while the foreign deficit will reach 8.2% of the GDP, from the current 14%. Adrian Vasilescu, an adviser to the governor of the National Bank of Romania, reacted to Moody"s estimates saying that actual figures were pointing to a 4-5% economic growth in 2009, which would be less than in 2008, but still well above zero. Vasilescu commented that Moody"s predictions for the foreign deficit and the budget deficit of Romania in 2009 were unrealistic. "A foreign deficit of 8.2% would be nice, but not possible. It will decrease to 10% of the GDP," Vasilescu said.