Despite a weak start to the year, analysts believe the economy has solid enough footing not to trip and fall.
This year, the economy cannot be much weaker than 2007 despite the poor start of the financial markets, say analysts, who outlined, for ZF, the worst case economic scenario.
The main assumptions of the worst case scenario for this year's economy are: a possible slowdown in consumption, an economic growth rate of up to 4% (from 5.8-6% in 2007), an above 6% inflation rate, further exchange rate deterioration, a wider budgetary deficit and a higher current account deficit, as well as greater reluctance on the part of foreign investors.
Moreover, a continued high level of inflation and fluctuations in foreign currency will restrain the population's capacity to payback loans and also put pressure on their purchasing power and disposable income.
If this occurred, the situation would look gloomy for retailers as well as for the entire consumer industry, which has been the economy's growth driver in recent years. At the same time, analysts do not see constructions sector slowing down, while industrial output and exports could be harmed by a potential continuation of the RON decline.
"The worst situation for the economy would be a very wide budgetary deficit that would push rating agencies to lower the country rating and convey a negative message to investors as a result. With our foreign deficit, a higher budgetary deficit is everything we do not need. We will probably still need solid economic growth this year, of 5-6%, whilst everything depends on the agricultural year," says Ionut Dumitru, head of research with Raiffeisen Bank.
Lucian Anghel, chief economist with BCR, is more upbeat and believes this year's economic performance is certain to be better than last year's. Anghel estimates the same scenario for inflation, which he believes cannot be worse than last year. In his opinion, the main risk of inflation comes from the exchange rate.
Macro forecasters say economic trends are still positive and the possibility of a reversed growth trend is out of the question.
At worst, Lucian-Liviu Albu, head of the Economic Prognosis Institute of the Romanian Academy, sees the economy slowing down to a growth rate of just 4% in 2008. "Even in the worst case scenario, 2008 cannot be weaker than 2007. There are no particular reasons for concern right now, compared with last year, when we had the drought, too," says Ion Ghizdeanu, chairman of the National Forecast Commission. He says the EU slowdown and rising oil prices are the main factors that may restrain the Romanian economy.
The main threats are concentrated in the first half of the year, when inflationary expectations and turmoil on the international markets may inhibit domestic investors. Among foreign analysts, UBS experts were the most bearish with regard to Romania at the end of last year.
Worst case scenario
The main assumptions of the worst-case scenario for this year's economy are: a possible slowdown in consumption, an economic growth rate of up to 4% (from 5.8-6% in 2007), an above 6% inflation rate, further exchange rate deterioration, a wider budgetary deficit and a higher current account deficit, as well as greater reluctance on the part of foreign investors.
Macro forecasters say economic trends are still positive and the possibility of a reversed growth trend is out of the question.
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