Unfortunately, analysts believe the fourth quarter might be the weakest of the year considering the uncertainty in Europe that has made an impact on the performance of every economy. Despite the good third quarter, and the increased confidence consumers have in the future performance of the economy, the crisis that broke out in Europe in September and October has made many people think twice about spending, preferring to wait and see what happens.
Until consumer spending gets some of its strength back, exports and agriculture have been bearing the burden of the rebound of the economy from the plunge in 2009 (-7.1%) and the 1.3% decline of 2010.
The official economic growth the government will expect next year will become known some time in the coming week (until around November 7), after discussions with the International Monetary Fund and the European Commission. The growth considered for the talks is 1.5% to 2.2% depending on what happens in Europe. The IMF expects next year’s growth to be driven by the rebound of consumer spending.
Ionut Dumitru, chief economist of Raiffeisen Bank Romania and chairman of the Fiscal Council, says that a potentially faster growth of the gross domestic product of 3% in the third quarter mainly owes to agriculture and will not translate into an increase of budget revenue since a large part of it goes to self consumption.
“We will learn the data about the third quarter GDP on November 15, but there are certain parameters that reveal a faster pace of economic growth, that is the performance of agriculture and construction. Export demand has slowed down. The problem is that this faster pace of growth will not properly show in the trend of budget revenue because retail is in decline. The conclusion is that self-consumption is up,” Dumitru said.
President Basescu, who announced the good third quarter news before everybody else at the end of the Sunday evening talks with the IMF, said that the most important increases were those of agriculture, 12%, construction, 10% and tourism, 19%.
The year 2011 started quite well, with a 1.7% GDP growth in the first quarter compared with the same time last year. A slowdown of the yearly pace, an indicator foreign markets and rating agencies look at, to 1.4% followed in the second quarter.
The economy picked up the pace in the second quarter mainly because of agriculture. The 2011 harvest is put at about EUR12 billion.
When comparing the third quarter of 2011 and the third quarter of 2010 one must not overlook the base effect, considering the economy slid back into recession in the third quarter of 2010 because of the VAT hike to 24% and of the 25% public sector wage cut.
After a 8.4% peak in May, inflation halved in July and August, reaching the lowest post-1989 level, 3.45% in September, which paves the way for the National Bank of Romania (BNR) to relax the monetary policy and reduce the minimum mandatory reserves.
This room to maneuver that BNR might have is partly cancelled by the turmoil on the European financial markets, where investors’ risk aversion is quite high. Hence the higher risk premium (credit default swap) for Romania compared with a year ago.
Dan Bucsa, chief economist of UniCredit Tiriac Bank says the GDP’s trend in the third and fourth quarters of each year is influenced by how the contribution of agriculture is registered. If most of the agricultural production is included in the third quarter GDP, then the fourth quarter result will be lower. “Overall we maintain our 1.8% forecast for 2011, somewhat more optimistic than the official forecast and than the average of the forecasts of economic analysts,” he said.
The analysts of BCR, the largest local bank, say that about 3% growth in the third quarter could drive the full year economic growth to 1.7%. BCR had previously estimated about 2% of GDP for the third quarter and 1.4% for the entire year.
Melania Hancila, Volksbank’s chief economist says that judging from the available monthly data, the economy will have the best performance in the third quarter and the full-year growth might stand at 2% to 2.5%.
(English version by Loredana Fratila-Cristescu)