Romania account gap

BUCHAREST (Reuters) – Romania’s current account deficit nearly trebled in the first two months of 2007, compared with the previous year, as import growth accelerated after the country’s entry into the European Union. Central bank data yesterday showed the external deficit rose to -2.05 billion from -770 million in the first two months of 2006. Imports rose 31 percent to -6.398 billion on the year, and exports increased 13 percent. The swelling deficit in the flow of goods, services, investment income and other transfers poses a major risk for Romania’s fast-growing economy. «Judging by this spectacular rise, we can expect a disastrous deficit at the end of the year,» said Ionut Dumitru, the head of research at Raiffeisen Bank in Bucharest. «The main cause for the deficit rise is the trade balance, which has deteriorated due to the removal of taxes with EU countries and the appreciation of the leu.» The International Monetary Fund expects the current account deficit to hit 12 percent of gross domestic product this year after 10 percent in 2006. The leu currency showed no reaction to the data release, trading near the previous session’s highest level against the euro in four-and-a-half years. But analysts saw a risk of a rapid decline in the leu if robust foreign investment in Romania hits a snag. «This will increase the chances for a brutal correction on the currency exchange rate toward the end of the year,» Dumitru said.

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