NATIONAL BANK VICE GOVERNOR POPA: The GDP Could Plunge Deeper Than Estimated

N.I.

The forecast 4% contraction of the Romanian economy remains feasible, but the GDP could plunge even deeper than that, considering that the figures for the first quarter are below target, according to National Bank of Romania (BNR) Vice Governor Cristian Popa.

"I keep to the projected 4% setback, but there is a risk that the actual figure may be worse, considering the poor performance of the economy in the first quarter," Vice Governor Popa told a seminar organized the BNR.

According to the information released by the National Statistics Institute, the Romanian economy receded 6.2% year-on-year in Q1, well above the experts" estimates. In fact, after the information became public, the IMF hinted that they could negatively revise the forecast for the Romanian economy from the current (-) 4.1%. Analysts working for international banks operating in Romania also worsened the outlook for the remainder of the year to as low as (-) 7.1% (ING Bank).

In mid-April, Cristian Popa was saying the Romanian economy could manage to recede only 1.5% this year, the very abrupt adjustment of the current account deficit being an argument for a more pessimistic forecast.

• Inflation rate, in BNR"s target range

Referring to the inflation rate, Vice Governor Popa said it would "most probably" be within the range targeted by the National Bank, respectively 2.5-4.5% for the entire year, as the exchange rate fluctuations would be smaller than in the first quarter. "The inflation rate will most probably be within the range targeted by the BNR as I do not expect any major fluctuations in the exchange rate, as the case was in the first quarter," Popa said.

He added that his expectation was that the fiscal policy would support the disinflation process in the years to come, considering the budget deficit targets undertaken by the Government and the calendar for the adoption of the euro in 2014. "Fiscal policy should support the disinflation process in two ways: the reduction of the budget deficit to the accepted limits and the successful adoption of the euro," Popa said.

The annualized inflation rate decreased to 5.95% in May, the lowest value since August 2007, after having reached 6.89% in February and 6.71% in March amid a strong depreciation of the RON to as low as 4.3 RON/EUR. The exchange rate somewhat stabilized in the second quarter below 4.24 RON/EUR in the last two months.

The National Bank"s target for this year is to have an annual inflation rate of 3.5% with a margin of +/- 1 percentage point (2.5% - 4.5%). The latest forecast points to an annualized inflation rate of 4.4%.