Friday, November 12, 2010

Romanian GDP Shrank Annual 2.5% in Third Quarter as Domestic Demand Falls

By Irina Savu - Nov 12, 2010

Romania’s economic decline accelerated in the third quarter as a tax increase and public payroll reductions damped consumer demand in the country of 22 million.

Gross domestic product fell a preliminary unadjusted 2.5 percent from a year earlier compared with a 0.5 percent decline in the second quarter, the National Statistics Institute in Bucharest said today in an e-mail. GDP contracted 0.7 percent from the previous three months, after the first quarterly growth since 2008 in the second quarter.

Romania, which took an International Monetary Fund-led bailout last year, will probably see output decline for a second year in 2010 because of austerity measures implemented in July to meet budget-deficit targets, IMF Mission Chief Jeffrey Franks said Nov. 1. The government raised the value-added tax by 5 percentage points and cut public wages by 25 percent to narrow the gap to 6.8 percent of GDP this year and 4.4 percent in 2011.

The IMF forecasts GDP may contract as much as 2 percent in 2010 because of weak consumer demand, after shrinking 7.1 percent last year. The economy may return to growth next year, when it is forecast to expand as much as 1.5 percent.

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez in Prague at jagomez@bloomberg.net

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