Thursday, March 7, 2013

The Financial Times: Romania and Bulgaria GDP growth: just stagnating along

Romania averted recession in the last quarter of 2012, but can only look forward to a long and slow slog this year as external and internal problems weigh heavy.

GDP crept forwards at a seasonally-adjusted rate of 0.1 per cent from the third quarter, and an unadjusted 0.3 per cent from the fourth quarter of 2011, the National Statistics Institute (INS) announced on Wednesday, giving details of figures published last month.

The tiny rise – following a 0.3 per cent drop in Q3 2012 –was driven by increasing consumption, which grew by 1 per cent, offsetting a dramatic drop in agriculture, which fell 24.6 per cent year-on-year due largely to a poor harvest.

Industrial output also fell, by 2.4 per cent, highlighting the squeeze caused by the eurozone crisis and internal structural challenges. Construction, a boom industry in the good years of the last decade, shrank by 2.1 per cent.

Overall GDP grew by just 0.2 per cent in 2012, according to a flash estimate by the INS released in February. A note by SocieteGenerale published before the Q4 results were released suggested that growth would rise to 1.3 per cent this year, provided there is an agricultural recovery and domestic demand rises. Recent forecasts from official sources and the World Bank are similarly cautious, at 1.5 per cent and 1.6 per cent respectively.

After several years of strong growth in the 2000s, Romania has been hit hard by the 2009 global recession and the eurozone crisis, which have revealed systemic weaknesses in its economy. The government is in a long-drawn out proces of seeking a new loan package from the IMF. Negotiations have been postponed due to Romania’s political crisis last year, and the need for it to push forward long-overdue reforms and privatisations.

“The growth in the last quarter was driven by consumption as public salaries rose in the middle of last year,” says Romanian journalist CristianPantazi. “But overall Romania has been affected by the eurozone and an associated slowdown in industrial production, which is the major problem for the country. Two of the main reasons are the price of energy, and low productivity compared to other European countries.”

Pantazi cites the example of Mechel, a major Russian-owned steel company, which sold its five Romanian plants last month for just $70.

“The outlook is not positive,” he adds. “We see protests every day from workers at public and privately-owned companies angry about job losses, low salaries, and rising bills. This will be another very difficult year for Romania, and it will be difficult to meet fiscal needs without help from the IMF and European Commission.”

Street protests against economic hardship, corruption and government authoritarianism last year led to the fall of Romania’s government, a story that has been repeated in recent weeks in Bulgaria.

Last month, Prime Minister BoykoBorisov resigned following demonstrations against his right-of-centre government, throwing Bulgaria into political uncertainly.

Romania’s southern neighbor and fellow EU member registered growth of just 0.8 per cent last year, according to figures published on Wednesday. The economy is expected to expand by less than 2 per cent in 2013, and the opaque policy outlook in the run-up to – and probably aftermath of – snap elections in May is a serious downside risk.

While Romania can count on a large internal market and a diversified economy, Bulgaria is in a stronger position fiscally. In December, the IMF estimated that its budget deficit would fall to 1.3 per cent of GDP for full-year 2012, with debt at just 18.5 per cent of GDP.

But for both countries, the bumper years seem far behind, and low incomes and at best modest growth a reality for the foreseeable future.

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