Romania To Experience Difficult Econ Recession, Should Avoid Collapse - Moody's

Moody's expects Romania to experience a difficult recession in 2009, but the economy should avoid a major collapse due to relatively low private sector debt and less reliance on foreign trade.

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"There is ample evidence that the economy is now slowing sharply. Export-oriented sectors are reducing production and the construction industry is faltering. Domestic liquidity has eased somewhat since February but the central bank is still maintaining high rates to support the currency," a Moody's report reads.

Moody’s estimates that the country’s economy will fall by 4% this year, but will recover in 2010, when it will register a 0.3% growth.

According to the rating agency, the credit strengths for Romania include increasing EU economic and financial integration that supports investment and microeconomic restructuring, and low government debt and support from EU/IMF that mitigate vulnerabilities posed by macro imbalances.

On the other hand, Romania’s credit challenges include controlling the budget deficit in the context of an economic recession and limited financing, and risks to macro stability posed by deteriorating economy, high external debt and large current account deficit

Moody's anticipates Romania’s annual inflation rate will fall from 6.3% last year to 4.9% in 2009 and 3.7% in 2010.

At the same time, the country’s budget deficit is seen down from 5.2% of the GDP in 2008 to 5.1% this year, exceeding the IMF target of 4.6% of the GDP and 4% of the GDP next year. As for the government debt, Moody's estimates it will gradually increase, from 16.3% of the GDP in 2008 to 22.5% in 2009 and to 29.3% of the GDP in 2010.

Moody's experts also forecast a significant adjustment of the current account deficit, at 7.1% of the GDP in 2009 and 6.8% of the GDP in 2010.

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