ING Sees Romania GDP Contracting 6.6% in 2020

The reality of the Covid-19 crisis will bite severely into the real economy and Romania's GDP is seen contracting by 6.6% in 2020, with a second quarter to forget, followed by a less pronounced “V-shaped” recovery than previously expected, ING said in a report Friday.

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Imaginea articolului ING Sees Romania GDP Contracting 6.6% in 2020

ING Sees Romania GDP Contracting 6.6% in 2020

ING economists expect GDP contraction will begin in 1Q/2020 and estimate a -1.3% drop vs 4Q/2019 (+1.7% vs 1Q/2019), despite the probably strong first two months.

The bulk of the current anti-pandemic measures will be visible in 2Q/2020, where we see a -19.7% contraction vs 1Q/2020 (-19.1% vs 2Q/2019), with the main drags coming from industry and trade. This assumes a gradual re-opening of the economy starting in late May and, by the end of June, we expect the conditions to restart growth engines to be met, prompting a third quarter advance by +17% vs the second one. It might seem a sharp rebound but it comes from a low base.

The year-on-year dynamics will remain deeply negative at -5.9%. Benefiting from a relatively low base as well, we see the fourth quarter expanding by 4.4% compared to the previous one, while still contracting by 3.2% vs 4Q/2019. This will create quite a strong carry-over effect for 2021, when we see GDP accelerating by 7.1%, ING analysts noted.

ING sees the year-end budget deficit lading anywhere between 7% and 9% of GDP, depending not only on the already difficult to predict GDP dynamics, but also on how revenues will perform in this unprecedented situation.

“We are therefore pinpointing a -7.9% budget deficit for 2020, acknowledging that there are many unknowns at this stage,” it said.

ING believes that the key rate could reach 1.5% by the end of the year, with the same ±0.5 pp corridor around the key rate. It also expects reserve requirements for hard currency and RON will be cut by at least 2 percentage points each.

ING maintains its year-end forecast for the EUR/RON at 4.88 and inflation at 2.5%.

“All in all, we believe that the central bank is able to keep things under control due to its still large FX reserves, but pressures for something to give in will remain,” the report noted.

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