Wednesday, January 13, 2010

ING Report : Romania fails to benefit from exchange rate flexibility

Romania has failed to “fully exploit” the advantages of a flexible exchange rate in 2009 and its economy declined more abruptly compared to the average registered in countries with a floating exchange rate, ING Bank said in a report Tuesday. According to ING analysts' estimations, the situation is likely to continue in 2010 as well. "Theoretically, Romania should have fared better due to, among others factors, one of the lowest levels of credit-to-gross domestic product and exports-to-GDP," ING said.

ING analysts estimate Romania's economy contracted by 8% in 2009, compared with a median decline of 4.1% in the Central and Eastern European region. "The contraction in Romania seems to be outpaced only by those recorded in the Baltics," the survey noted.
In 2010, the economy is expected to underperform in the region as well, with a growth level seen at 0.5%, below the 1.5% average growth predicted for CEE countries.
Moreover, if the Romanian leu advances significantly versus the euro, the economy could suffer even more in 2010.

"This is because the economy did not fully benefit from a weaker currency and now it may perhaps be faced again with a stronger currency," the survey showed.In addition, imports may increase faster than exports in 2010, leading to a wider trade deficit instead of a narrowing one, ING analysts said.

ING updated its forecasts on the leu's evolution throughout 2010 and it now sees an exchange rate of 4.15 units per euro in the first quarter, from 4.4 units per euro previously.

By mid-year, the leu is expected to lose slightly to the euro, at 4.25 units, but is seen recouping to 4.2 units in the third quarter.The exchange rate is predicted at 4.1 units per euro at the end of 2010, slightly higher from a 4.2 units per euro level initially estimated.

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