Monday, December 6, 2010

WSJ Blogs: A Close Look at Romania’s GDP Figures Reveals Gloomy Prospects

By Joe Parkinson

The night is always darkest just before dawn…

And its getting pretty dark for the Romanian economy - as confirmed by Thursday’s GDP numbers, which showed the EU newcomer’s worst recession in 60 years deepened in the third quarter; with output shrinking 2.5% as austerity measures to keep the economy’s EUR20 billion bailout package on track sapped demand and erased gains from rising exports.

Many in the markets say it’s going to get darker…

Although the third-quarter data were in line with economists’ expectations, the breakdown of the numbers showed growth was flattered by a sizeable boost in inventories, feeding fears that the recession could deepen further when that temporary stimulus is removed,

“The details show that the picture is worrying… without a positive contribution from inventories, GDP would have contracted by around 3.5%,” said Nicolae Alexandru Chidesciuc, senior economist at ING in Bucharest.

“As long as we don’t see a fast pickup in consumption - which is unlikely given the austerity legislation - the risks are very high that the economy will continue to contract heavily,” he added.

That prospect, economists warn, could endanger the country’s emergency IMF-led bailout package, prompt an attack on its currency and aggravate mounting social unrest against painful spending cuts and tax rises.

“Its going to get worse in Romania before it gets better - and 2011 is going to be difficult,” said Nigel Rendell, emerging markets economist at RBC Capital Markets. “Looking at these numbers there’s little prospect of imminent recovery.”

Certainly with real wages falling, lending activity weak, and the fragile coalition government of Prime Minister Emil Boc set to face its third no-confidence vote since June to pass an austerity budget, the dawn, right now, seems a distant prospect.

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