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| INTERNATIONAL STOCK MARKET TENSION 22/01/2008 |
| (2008-01-22) |
| Last updated: 2008-01-23 16:26 EET |
There's no doubt about it: Romania has a functioning market economy, closely connected to the world economy. While that may sound like good news, under the current circumstances it’s hardly reason for celebration, as it means that Romania has been drawn into what threatens to become a world economic crisis.
Asian stock markets are reporting falls nearing the psychological 10 per cent threshold, while European stock exchanges have seen the highest losses since September 11th, 2001. Markets across the Atlantic fare no better. Bucharest Stock Exchange indices have gone down dramatically, making experts talk about a collapse. The Stock Exchange capitalisation Monday dropped by nearly one billion Euros, reaching a total of 19 billion Euros. And since the beginning of the year, capitalisation has decreased by more than 5.5 billion Euros. Unfortunately, the national currency seems rather weak as well. The reference exchange rate for the leu against the Euro, posted by the National Bank, has hit a three-year low.
We asked Raiffeisen Bank chief economist Ionut Dumitru about the causes of the national currency’s depreciation:
“International stock markets have seen significant declines, with even the mature markets losing up to 4-5 per cent. Also, emerging states’ currencies have depreciated; the leu was hardly expected to remain safe from such international market turmoil.”
What does the near future hold in store?Analyst Ionut Dumitru:
“We expect market pressures to continue, that is, to see continuing pressure on the national currency, but we also expect the National Bank not to allow the exchange rate to drop too much, because a continued decrease in the exchange rate would entail heavy pressure on the inflation rate. Secondly, we may have financial stability problems, as there are quite a lot of hard currency loans given to clients who cannot hedge currency risks.”
At an international level as well, forecasts are hardly optimistic. Eurogrup chairman Jean-Claude Juncker stated that the world market plunge was related to anxiety over the health of the American economy, and that recession in the US was not out of the question. This all took place despite the fact that President George W. Bush last Friday presented an economic recovery plan worth over 140-billion dollars. Many analysts however view the plan as too loose and insufficiently focused to be effective. And the stock market reaction has proved them right. Under these circumstances, the too small Romanian economy seems helpless to do anything except hope that the most pessimistic predictions won’t be fulfilled.
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