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IMF Probably Will Cut Romanian 2012 Growth Forecast, Franks Says

The International Monetary Fund probably will cut its 2012 growth forecast for Romania’s export-reliant economy as the euro-area debt crisis crimps growth in the Balkan country’s main trading partners.

The IMF, which approved a 675 million-euro ($913 billion) precautionary loan yesterday, may lower its outlook to as low as 2 percent from 3.5 percent, IMF mission chief to Romania Jeffrey Franks said in a phone interview from Washington last night.

“The prospects for next year are certainly worsening due to the situation elsewhere in Europe and so we would definitely be looking at a downward revision in our forecast,” Franks said. “It would certainly be below 3.5 percent but I would be surprised if it was below 2 percent.”

Europe’s economy is showing increasing signs of a slowdown as governments struggle to contain the fiscal crisis and avert a Greek default. Romania, which counted on an IMF-led bailout from 2009 through early 2011 as its economy shrank, exited a recession this year as surging exports mainly to the European Union helped offset weak domestic demand.

Gross domestic product expanded 1.7 percent from a year earlier in the first quarter and 1.4 percent in the second, after shrinking 1.3 percent last year and 7.1 percent in 2009. GDP probably will grow 1.5 percent this year, according to Franks.

Romanian inflation has slowed more than the IMF had anticipated and the central bank might meet its inflation target of 2 percent to 4 percent for this year, Franks said. The inflation rate fell to 4.25 percent in August, the lowest in 17 months, from 4.85 percent in July, as a bumper harvest boosted food stocks.

Sustained Inflation Slowdown

“What I think we would like to see on the IMF side is some sustained trend in downward inflation,” Franks said. “We need to make sure that this is not just a cyclical volatility due to a very good harvest, but that there is some underlying trend towards reducing inflation that is sustainable in 2012, before our recommendation on a tightening bias would change.”

Romania’s central bank should also refrain from “aggressively” reducing the amount of foreign currencies banks are required to hold to keep a “buffer in the financial system against banking sector problems elsewhere in Europe,” Franks said.

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