The agency revised upward its forecast on Romania’s growth to 2.8% in 2014, from 2.4% previously, following a faster-than-expected increase a year earlier.
Gross domestic product advanced at an annualized pace of 3.5% in 2013, fueled by “robust industrial and agricultural output,” Fitch said in a statement.
“Strong GDP fourth-quarter growth (1.7% quarter-on-quarter, 5.2% year-on-year) provides a good starting point for 2014, and Fitch now forecasts growth of 2.8%,” the statement noted.
The rating agency expects growth drivers will shift from exports to domestic demand and investment.
However, Romania’s growth trend “remains weaker and more volatile than the ‘BBB’ median,” Fitch said.
It said the local economy has absorbed previously large external imbalances, with the current account deficit falling to a post-transition low of 1.1% of GDP in 2013.
Additionally, the country holds “substantial fiscal and external buffers,” including government deposits equivalent to roughly six months of budget and debt financing, international reserves worth seven months of current account payments, and resources under a precautionary IMF-EU deal worth EUR4 billion.
“Nevertheless, disagreements between coalition partners led to the break-up in February of the ruling Social Liberal Union (USL), and tensions between the president and the prime minister have risen recently following a period of relative calm,” Fitch said.
Though a new government is expected to be in place shortly, the agency warns that domestic and external shocks could weaken Romania’s resilience.
Fitch warned that Romania’s ratings could come under downward pressure if the fiscal consolidation process should stop due to a loss of fiscal discipline and a failure to proceed with the restructuring of state-owned companies and other structural reforms.
Additionally, Romania’s ratings could come under downward pressure if the authorities lose momentum in implementing key structural reforms or if a series of “too loose” fiscal measures jeopardize the stability of public finances.
On the positive side, stronger trend economic growth, fueled by sustained structural reforms to state-owned enterprises, healthcare spending and the public administration, as well as a faster decline in external debt ratios may prompt an upgrade of the sovereign ratings, Fitch said.