ECONOMY

Romania Jan-May C/A deficit jumps 104 pct

BUCHAREST (Reuters) – Romania’s current account gap more than doubled to -5.94 billion in the first five months of 2007, compared with the same period in 2006, as import growth accelerated and exports lost steam. Data yesterday showed the swelling deficit in the balance, which tracks the flow of goods, services, investment income and other transfers, is a major worry for Romania’s fast growing economy. Officials said the gap may reach 11.5 percent of gross domestic product at the end of this year against 10 percent in 2006, but analysts see it exceeding 12 percent of GDP. Imports rose 28.6 percent to -17.9 billion on the year, and exports grew 12.7 percent. The trade imbalance has deteriorated since EU entry in January, due to the removal of import taxes with member states and the appreciation of the leu. The deficit «is unsustainable in the medium and long term. A leu correction seems inevitable and at the first external trigger, the leu would be the most vulnerable regional currency, due to this widening,» said Ciprian Dascalu, senior economist at ING Bank in Bucharest. «Leu vulnerability is increasing and it signals inflationary pressures in the future,» he added. Government plans to double pensions in the next two years has raised criticism that it would further widen the deficit. The leu, which gained more than 7 percent against the euro this year, putting a heavy burden on exports, has not reacted so far to the sharp widening of the current account. But analysts see a risk of a sharp reversal later on if robust foreign investment in Romania hits a snag. Foreign direct investment, at -2.14 billion, covered 36 percent of the current account gap in the first five months, against 36.1 percent in January-April.