Monday, June 15, 2009

Romanian Economy to Shrink This Year, President Says

By Adam Brown and Irina Savu

June 14 (Bloomberg) -- Romania’s economy is headed for a recession and the central bank’s forecast for zero growth is unrealistic, President Traian Basescusaid today.

Romania’s economy contracted an annual 6.2 percent in the first quarter as consumer demand plunged 13.7 percent, spurred by a slowdown in lending, wage growth and economic woes in the country’s main trading partners in western Europe.

“The optimism of Romania’s central bank is not justified,” Basescu said in a televised speech before a cabinet meeting in Bucharest. “Gross domestic product will decline in the second half as well. Romania is entering a recession.”

Central bank Governor Mugur Isarescu said last month that a 20 billion-euro ($28 billion) loan led by the International Monetary Fund will avert a drop in GDP in Romania for the full year of 2009. The $165 billion economy last year expanded 7.1 percent, the fastest rate in the European Union.

Basescu also said today that he wants the central bank to lower minimum reserve requirements for commercial banks, currently at 40 percent for foreign-exchange deposits and 18 percent for deposits in the local currency.

He said central bank reserves include 12 billion euros from the foreign exchange reserve and the equivalent of 6 billion euros in lei from the local-currency requirements.

“This is money that belongs to commercial banks,” Basescu said. “Our objective is to gradually lower this” and to “allow a decline in interest rates.”

To contact the reporter on this story: Adam Brown in Bucharest

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