Tuesday, July 7, 2009

Romania GDP may shrink by 6 pct in '09 -Econ Min

BUCHAREST, July 7 (Reuters) - Romania's economy could shrink by as much as 6 percent this year, as the world crisis batters the European Union state's exports, Economy Minister Adriean Videanu said late on Monday.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 gross domestic product this year -- under Romanian accounting standards -- 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.

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 recession at 6.2 percent on the year, raising concerns that a bigger gap would be unavoidable.'I think that the most pessimistic scenario could be -6 percent,' Videanu told a late night show on local television station Realitatea.Videanu said that if the economy shrinks by more than the initially forecast 4 percent, the budget deficit would rise, but he added investment spending would not be hurt.

Earlier on Monday, Prime Minister Emil Boc said the deficit could rise only to allow investment spending.'I have every determination to discuss with the IMF and the European Commission about raising the budget deficit, but only for infrastructure,' Boc said in a statement after meeting representatives of employers associations.'I can assure you the money will not go in plasma TVs, awards, bonuses or other such things. However, we will not touch the flat tax or the VAT.'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.

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