“Judging by the experience in 2008-2010, a drop of up to 5% in the gross domestic product could be possible,” the IMF said. The institution noted that Romania has strong trade and financial ties to the euro area and the banking system is largely owned by banks in the region.
Additionally, foreign-currency denominated loans comprise about 60% of the private lending.
“An exchange rate depreciation of 15%-20% could seriously impact bank portfolios,” the report noted.
Apart from possible spillover from the eurozone crisis, Romanian economy also faces more immediate risk stemming from domestic political developments, which could slow down reforms and dampen investor confidence.
“Public or political backlash against reforms could induce loss of consumer and investor confidence and more financial market volatility, including pressure on the exchange rate,” IMF said.
Though the domestic threat has a higher chance of materializing over the next one to three years compared with the external one, its impact on the local economy should be medium, the report noted.
“On the upside, a speedy normalization of the political situation and acceleration of reforms or a stronger global recovery could boost market sentiment and activity,” IMF said. “Inflation risks are tilted to the upside, including from higher-than-expected world food prices.”
IMF estimates Romania’s economy will grow by 1.4% in 2012 and will accelerate to 2.5% in 2013. Last year, the GDP expanded by 2.5%, fueled by a very good harvest and higher exports.