Friday, July 17, 2009

Romania economy to shrink 6.5-7.1 pct this yr-finmin

BUCHAREST, July 16 (Reuters) - Romania's economy is expected to undergo a deeper-than-expected contraction of around 6.5-7.1 percent this year, Finance Minister Gheorghe Pogea said on Thursday.

Like most of its neighbours, Romania slipped into recession this year as the global crisis slashed lending and consumption. It was forced to secure 20 billion euros in IMF-led aid.

Under the terms of the IMF deal, Romania must enforce vast public sector reforms, but was allowed to keep a budget deficit target of 4.6 percent of GDP, barely smaller than in 2008 and far above EU limits.The IMF deficit target hinges on a forecast of a 4 percent economic contraction this year, and some government officials have in recent weeks flagged a deeper contraction of around 6 pct.'

At the end of the year, economic contraction may range between 6.5 and 7.1 percent,' Pogea was quoted as saying by business television station The Money Channel.

So far, Bucharest's centre-left government has said it would stick to the agreed shortfall target, but first-quarter data showed a deeper-than-expected contraction of 6.2 percent on the year, raising concerns that a bigger gap may be on the cards.

Earlier this month, a ruling coalition party chief said Romania's government may raise this year's budget deficit target if the economic situation worsens while analysts said an adjustment was unavoidable in light of latest growth data.'As budget revenues are much below expectations and contraction is deeper ... a wider budget deficit is unavoidable,' said Ionut Dumitru of Raiffeisen Bank in Bucharest.An IMF mission will start reviewing Bucharest's progress under the standby deal early next month.

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