After a long period of gloom, forecasters see happier times ahead for the Romanian economy. All major financial agencies predict the economy will begin growing again this year. The International Monetary Fund and the government expect GDP will rise 1.3%, while the World Bank sees an increase of 0.5%. The sunniest view comes from Moody’s, which expects a 2.5% increase in Romanian GDP this year, revised upwards from its previous prediction of 1.2%.

 

Unemployment hit a six-year high of 8.1% in January, but this figure is far below the 10% that the IMF had envisaged earlier. The government also managed to stay below its budget deficit target of 7.3% of GDP in 2009, according to preliminary data. The positive news appears to have put investors in a more buoyant mood: Business confidence grew in the November-January period by 11 points after having stagnated for months, according to a Reuters/OeKB opinion poll.

 

A more pessimistic picture is painted by December 2009 retail sales, which dropped 7.4% from December 2008 and 5.7% from a month earlier. 2009 construction output plummeted 15.1 percent from 2008, according to the latest data from Eurostat. However, the building sector showed a slight uptick at year’s end, rising 10% in November and 6.9% in December month-on-month. Lower VAT on construction work will probably help the sector recover further in 2010.

 

Macroeconomic data also disappointed many people. Fourth-quarter GDP registered a 6.6% decline from the same period of 2008 and contracted 1.5% from the third quarter of 2009, according to flash estimates from the State Statistical Office. Analysts and government officials had expected GDP would improve slightly over the third quarter of 2009.

 

 

 

 

Analysis and Forecast: Decreasing Risk

 

2010 looks to be a year of recovery. Most importantly, Romania will not hold elections this year, giving the country breathing room after two years of permanent campaigning. The government, uninhibited by electoral considerations, has an opportunity to enact much-needed reforms in pensions and public finances without fearing an immediate backlash. Its job has been made easier by the breakup of the opposition bloc after the presidential elections. Now both the National Liberal Party (PNL) and the Social Democratic Party (PSD) are mainly tending to internal matters. Meanwhile, the coalition between the Democratic Liberal Party (PD-L) and the Democratic Union of Hungarians in Romania (UDMR) is running more smoothly than expected. The PD-L has embraced the long-suffering Minority Law, which will grant Romania’s ethnic Hungarian minority a wide degree of cultural autonomy. It also appears to have a positive attitude on establishing development zones in regions such as Székelyland, the heart of the ethnic Hungarian community, and has taken swift action in appointing local officials.