External markets’ perception of Romania has improved at the beginning of this year after the inclusion of Romanian government bonds in a JP Morgan index was announced, resulting in lower interbank interest rates and an appreciation of the leu against the euro. However, Romanians will have to wait a while before the favorable external perception is reflected in macroeconomic figures and then in improved standards of living.
Retail, the most important indicator of the population’s consumption, came with discouraging signals. It returned to a decline in December after 14 consecutive months of rises. And while up to now most forecasts pointed to economic growth of between 0-0.6% for last year, now some analysts say Romania’s economy is sure to decline in 2012.
Official data on economic growth in 2012 will be announced in mid-February, with data on industrial production and on foreign trade for last year expected in the meantime.
“The retail contraction is much larger than expected. It suggests there are very large risks that the 4Q of 2012 GDP will post a larger contraction that the marginal one we currently expect. This would mean that the 2012 full-year growth would come in below our current 0.0% base scenario,” said Vlad Muscalu, senior economist of ING Bank.
For this year enthusiasm over economic growth has somewhat relented, with forecasts already revised down in the first month of the year, pointing to growth of 0.5-1.6%.
The volume of retail turnover fell by 2.3% in December 2012 year-on-year as adjusted series, according to data released by Romania’s Statistics Institute at the end of last week. Retail sales also declined against November 2012. And this consumption decline had a negative impact on economic growth.
December used to be the best month for retailers. But this time the consumption decline reflects the poor economic activity in December 2012, which was also influenced by the extended winter holiday linking Christmas to New Year’s, which strongly affected budget revenues. A first indication of the consumption decline in December came from the fall in VAT revenues.
Net real wages slowed in 4Q of 2012, while average inflation picked up to almost 5%. Consumer lending continued its decline in 2012 (-4.9%), amid a more restrictive framework for foreign currency retail lending implemented by the central bank.
Since the crisis started in Romania, many entrepreneurs and managers are talking about encouraging private consumption as a solution to restart the economy. But economists say the rise of consumption needs to be rooted in domestic offer, not in imports, so as not to widen the current account deficit again.
Modern retail players did not feel the declines announced by the statistics institute, with some even talking about modest rises.
One explanation for this could be price increases for several products. Amid a similar or a shopping basket with less products, higher sales can be achieved through higher prices. For instance the price of poultry went up by a few percentage points year-on-year amid the drought.
Modern retail accounts for around 50% of the entire local retail, but in December most Romanians choose to shop in supermarkets or hypermarkets. So the sales decline is likely to have been felt more strongly by traditional, convenience retailers.
(English version by Daniela Stoican)