Tuesday, March 4, 2008

Romanian growth slows to 6 pct in 2007

By Radu Marinas
BUCHAREST, March 4 (Reuters) - Growth in the Romanian economy slowed to 6 percent in 2007, its first year in the European Union, from 7.7 percent in 2006 while prices soared and the current account balance of payments was in heavy deficit.

Analysts said strong domestic consumption continued to drive growth in consumer prices and imports, widening economic imbalances last year, but poor farming output and a weaker currency eased some of the pressures.

"Consumption has likely remained very strong and this should worry the central bank because it creates inflationary pressures," said Nicolaie Alexandru-Chidesciuc, ING Bank senior economist in Bucharest.

Analysts polled by Reuters had forecast growth of 5.9 percent for last year.
Romania has grown robustly in recent years driven by robust foreign investment, efforts by firms to modernise and strong household spending as Romanians race to improve living standards.

However, the spending spree has fanned significant import growth, widening the external shortfall and raising concerns that if foreign cash dries up the country may encounter financial problems.

Consumption-driven government spending has increased the concerns as foreign observers complain that Bucharest's ruling centrists have shown inadequate response to signs of economic overheating.

The economy grew by 6.6 percent year-on-year in the fourth quarter of 2007 compared with 5.7 percent in the third quarter.

Analysts said the Q4 growth spurt was driven by a jump in government spending in the final months of the year, when the budget racked up much of last year's deficit of 2.4 percent of gross domestic product (GDP).

Romania's strong growth mirrors the trend elsewhere in the region, where recent data releases have shown strong economic expansion last year as investment poured into eastern Europe. Poland grew by 6.5 percent in 2007, the fastest in a decade, while Slovakia expanded by a record 10.3 percent.

Romanian growth is seen at 6 percent in 2008.

The statistics office, which will issue a detailed GDP breakdown on March 12, said nominal GDP was 404.7 billion lei ($163.3 billion) last year.

The leu currency showed little reaction to the data, trading at 3.7175 per euro at 1000 GMT, pulling back from a one-month low of 3.7870 hit on Monday. (Reporting by Radu Marinas; Writing by Justyna Pawlak; Editing by David Christian-Edwards)

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