Wednesday, June 17, 2009

Romania C/A deficit shrinks 79 pct y/y

BUCHAREST, June 17 (Reuters) - Romania's current account deficit shrank 79 percent year-on-year in the first four months of the year, raising concerns the adjustment was too sharp.

Central bank data released on Wednesday showed the gap narrowed to 1.18 billion euros ($1.64 billion) against 5.6 billion in the same period a year ago.

The external shortfall has been a headache for Romania and one of the main causes of the leu currency's weakness earlier this year, making the country more vulnerable to the global cash squeeze and prompting it to seek IMF help.

Romania has turned from an investment hot spot and a fast-rising economy into one of the EU's most vulnerable states, as its external deficit and dependence on scarce foreign cash have exposed it to a potential financing crisis.

But the gap is seen narrowing sharply this year as the world economic crisis hits consumption and manufacturing, raising concerns that it may be adjusting too fast.

"The move is in line with what has happened in previous months ... this is a rapid adjustment that shows strong contraction in aggregate demand," said Ionut Dumitru of Raiffeisen Bank in Bucharest.
Analysts have said a sharp adjustment would make room for a faster relaxation of monetary policy in the following period.

Earlier in June, data showed the Romanian economy shrank 6.2 percent on the year in the first quarter of 2009.

The bank said the external gap was entirely covered by foreign direct investment, which was 2.1 billion euros at the end of April, compared with 3.7 billion euros in the same period of last year. (Reporting by Radu Marinas; Editing by Mike Peacock)

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