Romania's economic drop of 4% is feasible, but could be worse, central lender official says

Romania's economy shrank 6.2 percent in the first quarter of the year on the similar interval of 2008, according to revised data of the country's statistics body INS, with a larger decline than the analysts estimated.

The International Monetary Fund (IMF) also hinted that it could revise downwards its estimate for the evolution of Romania's economy this year, from – 4.1 percent, as economists of major international banks published revised estimates for 2009 showing a contraction of up to 7.1 percent of the GDP in the case of ING Bank.  

Popa declared at mid-April that Romania's economy could fall by only 1.5 percent this year, an argument for a more pessimistic prognosis being a steep adjustment of the current account deficit.

Inflation could find itself within the BNR range at year-end

Romania's inflation will “most likely” enter the range targeted by the central lender for the end of 2009, of 2.5 – 4.5 percent, as the exchange rate volatility will be more reduced compared to the first quarter, added Popa. 

The vice governor said he expects in the following years the fiscal policy to support the deflationary process, given the budget gap targets assumed by the government and the calendar for the adoption of the single European currency. Romania plans to adopt the euro in 2014. 

The annual rate of inflation in Romania lowered to 5.95 percent in May, in line with estimates, from 6.45 percent in April, underpinned by a strong depreciation of the leu, to quotas which exceeded at some point 4.3 units per euro. The leu's volatility reduced in the second quarter but the exchange rate remained below 4.24 lei per euro in the past two months. 

The inflation last reached such a low level in August 2007, when the annual index of consumer prices stood at 4.96 percent.

BNR targets an inflation of 3.5 percent plus or minus one percentage point this year, but its last prognosis showed a 4.4 percent level for the year-end. Moreover, the central lender revised downwards its estimate for inflation at year-end, from 3.2 percent to 2.8 percent, as the target for next year was established at 3.5 percent plus of minus one percentage point.