ECONOMY

Romania’s economy surges 6.9 percent higher in 2006 Q1

BUCHAREST (Reuters) – Romania’s economic growth accelerated faster than expected in the first quarter of the year as investment surged and consumption remained strong, while analysts also predicted that this boosted chances for a rate hike in the coming months. The National Statistics Board (INS) said yesterday the economy grew 6.9 percent in the first three months of 2006, up from 4.3 percent in the previous quarter and 6 percent a year ago. The market expected a rise of 5.2 percent in real terms. Romania’s growth rate outpaced its regional peers, such as Slovakia or Poland, but will probably lag behind the Czech economy, expected to expand by 7.5 percent in the first quarter. «The GDP rise was triggered by greater volumes of activity in the industrial, construction and services sectors, whose overall contribution to the GDP was estimated at 84.2 percent,» the INS said in a statement. The Black Sea state, which hopes to join the European Union next year, needs annual growth rates of over 5 percent to catch up with its ex-communist peers which joined in 2004. Since 2001, growth has exceeded 5 percent every year except 2005, when devastating floods depressed farm output, slashing the growth rate to 4.1 percent from 8.4 percent in 2004. Construction showed the strongest growth of 20.4 percent, surprising some analysts who said building activity is usually weaker in the first quarter. Services rose 6.8 percent on the year, while industry was up 4.8 percent. Domestic spending has been a key driver of growth in Romania, booming along with the real estate sector as Romanians race to improve living standards after decades of spartan life under communism and foreigners flock in as the country opens up its economy. «Romania is speeding up investment and construction shortly before the EU accession… due to strong competition between the member states,» said Finansbank analyst Melania Hancila. Analysts said the GDP figures may calm the central bank (BNR)’s concerns that a tighter policy could harm the economy, paving the way for higher lending costs in the coming months as the data showed continued inflationary pressures. «There are no signs the Romanian economy is slowing down,» said Radu Craciun, head of research at ABN Amro in Bucharest. «You can now find few reasons not to have a tighter policy.» The BNR has stayed put since hiking the key rate by 100 basis points to 8.5 percent in February, with analysts saying it feared higher rates could buoy the leu currency and hurt exporters. Expectations for more tightening have faded recently after the bank said inflation should fall within its target of 3-5 percent in 2007 despite putting its December forecast further above this year’s goal of 4-6 percent. Inflation fell to a post-communist low of 6.9 percent in April, but analysts saw it rebounding to 7.4 percent in May. The consumption boom remained in double digits, rising by 10.2 percent in the first quarter. Gross fixed capital formation jumped 11.4 percent, while import growth continued to outpace exports.