Friday, August 14, 2009

Romanian contraction deepens to 8.8 pct y/y in Q2

BUCHAREST, Aug 12 (Reuters) - Romania's economic contraction deepened to 8.8 percent on the year in the second quarter from 6.2 percent in the first, data showed on Thursday, as global woes decimated domestic consumption, a key plank of the economy.

With manufacturing showing signs of tentative improvement in eastern and western Europe, countries heavily reliant on domestic demand are still in doldrums because of rising unemployment, public spending cuts and a shortage of credit.

"A double-digit drop in GDP for 2009 cannot be ruled out," said Lars Christensen from Danske Bank in Copenhagen. "There is no sign of stabilisation in the second quarter, contrary to what we for example have seen in the euro zone."

The economy shrank 1.2 percent quarter-on-quarter in the 2nd quarter, compared to a 4.6 percent contraction in the first.

Earlier this year Romania became one of several European Union members from the east to seek financial aid from the International Monetary Fund and other institutions including the European Commission to prevent a financing crisis.

Underscoring the depth of the country's woes, the Fund agreed this week for Romania to run a gaping budget deficit of 7.3 percent gross domestic product to account for the "severe" recession that has eaten into tax revenues.

The IMF now expects the Romanian economy to contract by at least 8 percent this year, compared with earlier predictions of 4 percent and last year's growth of 7.1 percent.

The data cemented expectations of further monetary easing in Romania as the central bank strives to revive the economy. It has cut rates by 1.75 percentage points so far in the current easing cycle, but the easing was limited by concerns over a weak leu hurting the inflation outlook.

"It's worse than I expected, Romania is going through a severe hard landing after a boom lasting for five years," said Miroslav Plojhar from JPMorgan in London.

"I still expect a 50 basis points cut at the next meeting, and probably no change in November, because there is the risk of a resurgence in risk aversion in the last quarter."

On a quarterly basis, the economy contracted by 1.2 percent in April-May, compared with 4.6 percent in the first quarter, official statistical estimates showed.

The statistical office will issue a detailed breakdown on the data on Sept. 1.

No comments: