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| ECONOMIC FORECASTS IN TIME OF CRISIS 19/03/2008 |
| (2008-03-19) |
| Last updated: 2008-03-20 18:24 EET |
It’s no secret that the US is having economic difficulties. The White House leader himself has acknowledged this and it is proved by the exceptional measures taken in Washington in order to ward off a potential recession. One such measure was Tuesday's decision of the Federal Reserve to increase liquidity on the credit market, which has once again, massively slashed interest rates for bank loans.
Trying to calm the uneasiness of both the financial markets and the public, President George W. Bush vows that his administration is in control of the economy, that American financial institutions are strong and the capital markets efficient. But the cut-priced sale of Bear Stearns, one of the leading American banks, going back 85 years, but on the verge of bankruptcy because of losses in the sub-prime mortgage market, has shocked Wall Street, and the fear that few banks are safe from financial debacle has had a negative impact on stock markets around the world.
The US dollar continue to plunge, as the oil price is just steps from hitting 112 dollars a barrel. In Europe, stock markets opened on the slope, and share prices in some major banks dropped by over 10 per cent. Forecasts are hardly optimistic. Experts believe Europe will continue to face problems. “The financial crisis in the global market may seriously affect the Romanian economy as well,” analysts with the Economist Intelligence Unit warn.
The weakness mentioned by the British experts is primarily generated by the current account deficit, which last year reached 14.2 per cent of GDP. So far the deficit was funded mainly from direct foreign investment, but these revenues will shrink as the privatisation process is drawing to a close, experts with the Economist Intelligence Unit say.
At the same time, the flow of foreign investments into Romania risks being discontinued at any time, while part of the existing investments might withdraw. Romania fares no better in terms of inflation, which spiked last year to 6.5 per cent. As for the economic growth rate, probably Romania will be no exception and, just like the other southern and eastern European states, it will see its growth rate go down.
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