Thursday, July 2, 2009

Romania GDP may shrink more than 4 pct in '09-Popa

BUCHAREST, July 2 (Reuters) - Romania's economy may shrink by more than the International Monetary Fund's projection of 4 percent this year and may show a 'significant' contraction in the second quarter, deputy Governor Cristian Popa said.

Romania's economy contracted by 6.2 percent in the first quarter of this year, much more than analysts expected, as the world crisis slashed lending, consumption and external demand.

Its large imbalances have forced it to seek help from a group of international institutions, led by the IMF, from which it secured a 20 billion euros loan in March.

'(A GDP contraction) of 4 percent is the base scenario, (but) based on the first-quarter reading, we may have more risks on the downside,' Popa told local business television The Money Channel late on Wednesday.

'For the second quarter, I expect significantly negative growth ... I hope there are chances at least for a flat (reading) in the fourth quarter.'

His comments came a day after the central bank chopped 50 basis points off its benchmark rate to 9 percent and most economists expect further easing later this year.

'We are in a trend of adjusting monetary policy to the macroeconomic conditions, but the term 'relaxation' is not correct,' Popa said.

Latest inflation data showed consumer price growth fell by half a percentage point to 6 percent in May. Earlier this year, governor Mugur Isarescu said Romania cannot afford real interest rates of over 3 percent.

Popa also said inflation was on a downward path and is expected to enter the 2.5-4.5 percent target band at the end of this year, while next year it is seen heading below the central point in the bank's target range or 3.5 percent.

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