Wednesday, March 3, 2010

Romanian GDP Contraction Slowed in Fourth Quarter

By Adam Brown and Irina Savu

March 3 (Bloomberg) -- Romania’s economic decline slowed last quarter as growing demand in western Europe boosted industrial output and exports while the drop in consumption eased.

Gross domestic product fell 6.5 percent from a year earlier after a 7.1 percent decline in the previous three months, the National Statistics Institute in Bucharest said in an e-mail today. The figure was revised from the 6.6 percent contraction the institute estimated last month for the fourth quarter.

“The data reveal an improvement in private consumption and this is very good news,” Nicolaie Alexandre-Chidesciuc, chief economist at ING Bank Romania, said in an e-mail today. “At the same time, the data show the need for further key interest rate cuts to support the fragile recovery.”

Romania suffered its worst recession in at least 20 years in 2009 as booms in construction and commerce collapsed. The recession wiped out gains made in 2008 when the economy grew 7.1 percent, the fastest pace in the European Union, which the country joined in 2007. Shrinking government revenue and pressure on the leu forced the government to turn last April to international lenders for a bailout package.

Rate Cuts

The leu was little changed at 4.1044 per euro as of 10:37 a.m. in Bucharest trading, after the data. The Bucharest Stock Exchange benchmark BET index fell 0.7 percent to 5417.80. The currency has advanced 3 percent this year, the second-biggest gain in eastern Europe, after losing 5 percent last year against the euro, while the BET index gained 57 percent in 2009.

The Banca Nationala a Romaniei has so far cut its main interest rate by a full percentage point this year to 7 percent, to help stimulate growth. It next meets on March 29 to discuss further changes.

“The rate reduction trend will continue, but not in big steps,” Lucian Croitoru, a central bank monetary-policy adviser, said in an interview with The Money Channel television today. He also predicted Romania will exit the recession in the second half when “domestic demand, which has the largest weight in GDP, picks up.”

Fragile Recovery

East European economies have been emerging from recessions in recent quarters although slower-than-expected recoveries, such as the improvement in Romania’s $163 billion economy, indicate the process may be fragile.

The fourth-quarter contraction figure, though improved from the institute’s first estimate, was still worse than the 6 percent contraction estimated in a February survey of nine economists by Bloomberg.

The Czech Republic’s economic slump deepened on an annual basis in the fourth quarter to a contraction of 4.2 percent after declining 4.1 percent in the third. Hungary’s economy contracted an annual 4 percent. Poland’s economy, the largest in east Europe, grew an annual 3.1 percent in the fourth quarter, driven by exports.

The International Monetary Fund, which is leading the 20 billion-euro ($27.3 billion) bailout package for Romania, predicts the recession will end as early as this quarter and the economy will grow 1.3 percent in the full year after contracting 7.1 percent in 2009. On the quarter, output fell 1.5 percent, the institute said.

Industrial output and exports helped slow the contraction at the end of last year. Industry expanded an annual 4 percent in the quarter, the first growth since 2008, while agriculture, which accounts for about a third of output, grew 0.7 percent. Exports rose 2.9 percent and the decline in consumption slowed to 4 percent from 9.2 percent in the second quarter.

Construction led the yearly contraction in the fourth quarter, dropping 15.9 percent, followed by a drop of 12.5 percent on year in commerce.

--With assistance from Zoya Shilova in Moscow. Editors: Alan Crosby, Douglas Lytle

To contact the reporter on this story: Adam Brown in Bucharest at abrown23@bloomberg.net

To contact the editor responsible for this story: Chris Kirkham at ckirkham@Bloomberg.net

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