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| WILL THE INFLATION RATE AFFECT FOREIGN INVESTMENT IN ROMANIA? 18/04/2008 |
| (2008-04-18) |
| Last updated: 2008-04-21 14:43 EET |
According to the governor of the National Bank of Romania Mugur Isarescu, the annual inflation rate in Romania, which reached 8.63% in March, the highest in the last 26 months, will remain stable until the end of June, and will then start to drop:
“We believe that the peak reached in March will remain until summer, before starting to decrease, most probably in the second part of the year. There will be no direct consequences, but only indirect consequences inversely proportional to the degree of market solidity. Considering that our markets are not very solid, we will see strong indirect consequences in terms of credibility, and foreign perceptions, some of which will be exaggerated and ill-intended.”
The opinion of the Central Bank is shared by the financial analysts of the commercial banks. Lucian Claudiu Anghel, the chief economist of the Romanian Commercial Bank:
“8.63% is the inflation rate calculated for the last 12 months and it matches our estimations as well. I believe this is the highest the inflation rate will go in 2008. Even if in the first half of the year the inflation rate will remain at high levels, there is sufficient reason to expect a relatively stable external environment given that the relationship between supply and demand in the agricultural sector will again be a balanced one. Also, we don’t rule out a slight appreciation of the national currency.”
Isarescu has repeatedly warned that if the inflation rate maintains its current level, Romania might not be able to switch to the euro in 2014, as it hopes. However, Romania is not the only country confronting high inflation. In March, other EU states that have already adopted the euro, saw the highest level of inflation since the launch of the euro in 1999, namely 3.6%.
The European Union’s statistics agency says this is a result of rising prices of fuel, heating, dairy products and bread, a situation which also applies in Romania. Nonetheless, a survey conducted by Ernst & Young shows that Romania remains the most attractive destination for investors in the south of Europe. Romania's advantages are its cheap labor and high productivity.
The Ernst & Young survey also indicates that Romania is the first country in the region in terms of investors’ intentions to start or develop a business and build a research centre. Experts say foreign investors have improved their perception of Romania in the last three years, while the level of confidence in this country has increased following its entry into the European Union. In order to remain a favorite destination for investors, Bucharest should, however, improve its transport, logistics and communications infrastructure. Foreign investors in the last four years have concentrated on tertiary activities such as opening head offices, service centers, call centers and research and development facilities, and sales and marketing activities. In 2007, these areas accounted for 44% of all foreign investment in Romania, the rest being industrial activities.
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