ECONOMY

Romanian economy grows 5.7 pct y/y in third quarter

BUCHAREST – Romania’s economy grew by a higher-than-expected 5.7 percent in the third quarter of 2007 propelled by robust demand, and economists warned there were signs of overheating. Statistical data showed yesterday that GDP was up 5.8 percent in the first nine months. The new European Union member expanded by 8.3 percent in the third quarter of last year and 5.6 percent in April-June this year. The European Union newcomer’s economy has grown robustly in recent years driven by foreign investment, efforts by companies to modernize and strong household spending as Romanians race to improve living standards. But the spending spree has fanned import growth, widening the current account gap and raising concerns that if foreign cash dries up, the country may face financing problems. Officials see the external shortfall reaching up to 14 percent of gross domestic product this year. Analysts surveyed by Reuters had forecast growth at 5.1 percent for the third quarter. «Stronger growth (will)… push up inflation,» said Simon Quijano-Evans, economist at Unicredit in Vienna. «In order to keep inflation expectations and meet (next year’s) target… the central bank will have to hike rates.» The bank raised its key rate to 7.5 percent in October as inflation surged above the 3-5 percent target for 2007. Analysts say a deteriorating outlook for inflation will prompt a new hike in January. The central bank and the International Monetary Fund have repeatedly urged the centrist government, which commands only 20 percent of seats in parliament, to tighten fiscal and wage policies to rein in demand and boost economic competitiveness. The government also needs to show ratings agencies it is serious about reforms to prevent possible downgrades. Earlier this month, Standard & Poor’s revised Romania’s outlook to negative from stable due to worries over a lack of policies to contain the current account deficit. Higher demand? In the absence of a breakdown of Q3 GDP data, which will be released on December 7, analysts said it was difficult to pinpoint to a reason for the higher-than-expected figure. «Either it is some form of better-than-expected contribution from exports or… basically higher consumption,» Quijano-Evans said. «I would tip toward the latter.» Nominal GDP was 111.3 billion lei ($46.65 billion), the statistical office said. Others said growth may have been supported by a jump in other sectors, such as construction or services. «We have a better-than-expected figure because a weak agricultural output due to drought was clearly offset by steep growth in the construction sector,» said ABN Amro analyst Catalina Constantinescu. The leu currency firmed versus the euro after the data release as dealers said the growth figure would improve market sentiment toward the recently battered currency.