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| Romanian Central Bank Issues Warning |
| (2011-08-09) |
| Last updated: 2011-08-10 14:04 EET |
The world’s stock markets are feeling the pinch of the US credit rating downgrade operated last week by the Standard&Poor’s agency. Against the backdrop of investor restlessness and concern that global economy should be swept by a second wave of recession, stock markets have reported severe drops. Nor did the Bucharest Stock Exchange manage to steer clear of general decline, and plunged over 7%, the worst decline of the past 15 months.
Recently brought on track to slow but definite economic growth, Romania could be tainted by the negative developments at global level, especially in the Euro zone. Romanian Central Bank governor Mugur Isarescu said the falling pace of economic growth in Western Europe, the main outlet for Romanian products, would slow down the growth of the Romanian economy. Adding to this is the lingering investor concern that became transparent on international markets. The Romanian official voiced his hope that domestic consumption should help ease economic growth.
On a more positive note, Isarescu announced Romania has revised its annual inflation forecast for 2011 from 5.1% to 4.6%. The forecast is the result of corrections of volatile prices for fruit and vegetables. Governor Isarescu explained that the evolution of the inflation rate is positive on the short-term, since the effects of the VAT hike from 19 to 24% will start to wear off, while the GDP is bound to rise. However, there is still significant concern over the medium-term evolution of the inflation rate.
Mugur Isarescu: “So far we there is no favorable effect on our economy from the outside due to the faltering economies of the euro zone and the sovereign debt crisis. There is increased possibility for foreign capital outflows, waning appetite for risky investments and growing concern, while foreign investors have a higher propensity for prudence. All this also affects the Euro-US dollar exchange rate. For the time being capital flights remain stable”.
Risks looming over the future short-term evolution of the inflation rate include thermal energy subsidies that are to be eliminated, as well as concerns linked with the liberalization of natural gas and electricity markets. The Romanian Central Bank message therefore oozes restrained optimism. Mugur Isarescu said the Romanian GDP stands good chances of registering a 1.5% rise this year above the official estimates provided we have a bumper crop. A bumper crop would translate as 1 billion euros in terms of farm output, tantamount to 1% of the GDP.
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