Aug. 21 (Bloomberg) -- Investors should buy the leu against the euro as Romania’s current account-deficit shrinks and the economy recovers, Deutsche Bank AG said.

The Romanian currency may advance 5.8 percent to 4 per euro in three months, analysts including Arend Kapteyn in London forecast in a note to clients dated Aug. 21. The leu strengthened 0.1 percent to 4.2305 against the common currency as of 11:19 a.m. in Bucharest.

The deficit shrank to 2.4 billion euros ($3.4 billion) in the first half from 8.9 billion euros a year earlier as domestic purchasing power weakened and the leu lost 14 percent, according to the central bank. The International Monetary Fund predicts the gap will shrink to 5.5 percent of gross domestic product in 2009 from 12.5 percent in 2008. The government agreed in April to a 20 billion-euro loan led by the IMF to cover its current- account and budget shortfalls.

“A sharply reduced financing gap and more compelling valuation metrics suggest that leu underperformance should be nearing an end,” analysts Kapteyn, Caroline Grady and Angus Halkett wrote. “Furthermore, with a supportive IMF and the central bank desirous of currency stability in order to meet the inflation target, the risks are skewed towards appreciation.”

Deepening Recession

The economy shrank an annual 8.8 percent in the second quarter, after slumping 6.2 percent in the first three months as shrinking export markets forced businesses to cut jobs and left consumers reluctant to spend, government data showed Aug. 13. Exports fell 18 percent in June from a year earlier, the statistics institute said Aug. 10.

“Although the first-half growth numbers were dismal there are signs that the economy is bottoming out and the stronger- than-expected data coming out of the euroland should lead exports to stage a recovery,” Deutsche Bank said.

Germany and France unexpectedly ended their recessions in the second quarter, data showed last week. Romanian industrial output declined 8.9 percent in June, from 12 percent at the beginning of the year, the government said on Aug. 7.

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

Last Updated: August 21, 2009 05:21 EDT