Romanian economy set to continue growing, pace is affected by world markets

BUCHAREST – Romania’s economy should continue to grow next year, building on a better-than-expected expansion in 2001, but analysts expect the global slowdown to take its toll along with the need to rein in deficits. Growth will continue, but seems unlikely to keep this year’s pace given trends in the world economy and the need to cut trade and budget deficits to ensure a continuous disinflation, ABN Amro analyst Radu Craciun said. A Reuters poll of 11 economists, released yesterday, put the average forecast for next year’s gross domestic product growth at 4.2 percent, much slower than an official target of 5 percent and down from the estimated 2001 figure of 4.5 percent. Recent research by foreign analysts was even more skeptical, with Merrill Lynch predicting 2002 GDP growth of 3 percent. We do not expect growth to be near the government target of 5 percent but near 3 percent due to the knock-on effect of the slowdown in Europe and to some success in implementing the structural reform program, Merrill emerging markets director of research Matthew Vogel wrote in a report released last week. This year’s economic growth was driven by domestic demand and a continuous rise in exports, most going to EU member states. Under a $383 million IMF standby accord approved last week, Romania pledged tough measures to accelerate privatization, restructure its loss-making industries and rein in spending. Those moves are key steps to ensure sustainable growth after three painful years of recession in the late 1990s. They should also help cut inflation to catch up in the European Union accession race. Optimism on inflation Analysts revised down their 2001 inflation estimate to 30.3 percent on average from 32.1 previously, nearing the government’s target of 29 percent. But most were reluctant to predict a figure for 2002, when the official target is 22 percent. Monthly inflation is likely to hover around 2.2-2.3 percent in the last quarter with a gradual rise in electricity prices, said one analyst. It remains to be seen how much of that adjustment would be reflected in the first months of 2002. The government promised monthly increases in utility prices, mainly energy and gas, from October to March 2002 in line with demands by the International Monetary Fund. The poll, conducted from October 30 to November 9, showed that analysts expect monthly inflation to quicken to 2.4 percent on average in October from 1.9 percent the previous month. Official October consumer price data are due next week. The average forecast for the 2001 trade deficit was $2.4 billion, up from $2.3 billion previously. The nine-month trade numbers showed a gap of $1.8 billion, double the period a year ago. Analysts said a seasonal rise in energy and various year-end imports was likely in the last quarter. SESME said in a statement it has already committed itself to ensuring, both to consumers and the government, that the transition to the euro and the ban on loss-leader practices (the sale of products below cost to attract customers) as of January 1 will not lead to price rises.

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