Romania’s Economic Growth Will Slow to 0.7% This Year, BCR Says

Romania’s economic growth will slow this year as the crisis in the euro area, the country’s main trading partner, and domestic political turmoil hold back investors, Banca Comerciala Romana SA said.

Total output will expand about 0.7 percent this year, slower than last year’s advance of 2.5 percent, analysts at Romania’s largest bank wrote in a report released today in Bucharest. Erste Group Bank AG (EBS) ’s Romanian unit cut its outlook for next year to 1.9 percent from 2.9 percent.

“The patchy recovery Romania has seen so far, coupled with treacherous market conditions, both domestic and external, have led us to lower the growth outlook for the country in the short and medium term,” BCR said. “The European context remains torn apart by the sovereign debt crisis and, what is more worrisome, there is no light at the end of the tunnel, at least as yet.”

The crisis, which pushed the economy of the 17-nation euro area into a contraction in the second quarter after stalling in first, is sapping demand for exports from central and eastern Europe and stalling growth in the post-communist region. Poland’s economy slowed more than economists forecast in the second quarter to 2.4 percent, while Hungary’s recession is deepening.

Romania’s economy rebounded in the second quarter after two consecutive quarters of decline and gross domestic product for April through June grew 0.5 percent from the previous three months and 1.2 percent from the same period a year earlier.

Political Turmoil

The country has been embroiled in political turmoil over the past two months as a power struggle between its top leaders led to a 52-day suspension of President Traian Basescu, pushed the currency to record lows and boosted borrowing costs.

Basescu returned to office this week after a court ruling invalidated a July 29 impeachment referendum because of lower- than-required turnout. His feud with Prime Minister Victor Ponta may continue before parliamentary elections in December.

“The recent political turmoil is expected to eat away at foreign investors’ confidence, which is already affected by the European crisis,” BCR said in the report.

The bank also increased its inflation outlook for this year to 4 percent and said it doesn’t rule out the rate exceeding the central bank’s target of between 2 percent and 4 percent because of a drought-impacted harvest and a weaker currency.

“Parliamentary elections are just around the corner, and we see fiscal slippage of around 0.8 percentage points from the agreed target of 3 percent of GDP,” BCR said.

The government pledged to the International Monetary Fund and the European Union to cut a budget deficit to below 3 percent of GDP this year to exit a European Commission excessive deficit procedure.

The IMF also cut its economic growth forecast for Romania to 0.9 percent in 2012, down from the earlier forecast of 1.5 percent.

To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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