Romanian economy is steady, National Banks’ Governor tells EU ambassadors

Romanian economy is steady, National Banks’ Governor tells EU ambassadors

Bucharest, October 20, 2015/Independent Balkan News Agency

By Irina Stoica

Tax cuts and wage increases in the public sector  might lead to higher structural deficit in the Romanian economy. That was part of the message that the head of the National Bank (BNR) sent to the EU ambassadors in Bucharest. Governor Mugur Isarescu (photo) invited the diplomats at the bank’s headquarters and presented them with the evolution of the local economy.

According to a briefing obtained by Romanian news portal Hotnews, Isarescu showed that 2015 was the fifth consecutive year of growth. “After an increase of 2.4% in 2014, we expect in 2015 an economic growth of 3.5%, well above the EU average. The current account deficit is expected to remain below 1.0% of GDP in 2015, and international reserves remain at a comfortable level, despite the almost full repayment of the IMF loan”, the National Bank’s Governor explained.

The banking system shows no signs of vulnerability. On the contrary, it proved to be resistant to shocks and the exposure to the Greek banking system is limited. As the economic recovery after 2010 was initially led by exports, domestic consumption replaced the net exports since 2014. Rapid growth rates of electrical equipment and of the auto sector most strongly contributed to the favorable performance of the industry. Lately, the IT & C sector has gained a more powerful consistency, as their share in GDP surpassed the one of the agricultural sector in 2014 and is now close to the share of the construction sector. According to BNR’s experts, a significant deflection seems likely in the coming years due to future tax cuts and due to the wage increases in the public sector.

As for possible consequences that the crisis on Romania’s Eastern border may have on the economy, Mugur Isarescu finds no reasons to worry. “Economic risks arising as a result of the conflict between Russia and Ukraine were controlled. In the energy sector, the share of imports from Russia is limited (about 4%). Romania is able to cover from domestic sources about 92% of the consumption of natural gas”.

Romania ranks third in the EU in terms of energy independence, after Estonia and Denmark. Russian capital in Romania reflects in in the iron and steel sector (TMK), metallurgy (Alro Slatina) and petroleum refining (Lukoil). None of the companies with Russian capital can be considered systemically important. In the financial sector there is no direct connection between the Romanian banking system and the ones in Russia and Ukraine.