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Friday, August 24, 2007

Romanian Private Debt

From Bloomberg this morning:

Romanian Private Debt Rises an Annual 46% on Borrowing in Euros

By Adam Brown

Aug. 24 (Bloomberg) -- Private debt in Romania increased an annual 46 percent in July as a strengthening leu encouraged individuals and companies to take loans in foreign currencies.

Debt rose to 115 billion lei ($48 billion) as of July 31, the Bucharest-based National Bank of Romania said in an e-mail today. The increase in July from June was 5.2 percent, the bank said.

Total outstanding loans in foreign currencies, mostly in euros, increased an annual 50 percent to the equivalent of 55.8 billion lei while leu-denominated loans increased 43 percent to 59 billion lei, the central bank said.

The leu has risen 22 percent against the dollar and 15 percent against the euro in the past year, making loans in those currencies easier to pay for Romanians. Average net wages have also risen 22 percent, giving them more borrowing power, and the key interest rate fell to 7 percent from 8.75 percent.

The central bank said corporate debt in foreign currencies rose 31 percent in the year through July and individuals' debt increased 87 percent. Corporate debt in lei increased 38 percent while private citizens' burden in lei rose 48 percent.

Central bank Governor Mugur Isarescu has said he's worried about the increasing debt burden in foreign currencies, which could create problems for lei-earning borrowers if their currency suddenly weakens.

The bank said yesterday the debt load of Romanians who have fallen behind on loan payments by more than 30 days doubled in the year through June to 430 million lei.

Tuesday, August 21, 2007

From Bloomberg this morning:

Romanian new-car sales surged 25 percent in the first half as a stronger currency and rising wages spurred a boom in imports.

Car sales advanced to 146,000 vehicles from 117,000 a year earlier, the Bucharest-based Association of Automobile Producers & Importers said on its Web site today. Imports jumped 53 percent to 89,000 and sales of locally made cars fell 3.7 percent to 57,000.

Romania's currency, the leu, has gained 22 percent against the dollar and 15 percent against the euro in the past year amid an influx of foreign investment, making imports cheaper. Average net wages have risen more than 20 percent in a year.

Dacia SA, a unit of France's Renault SA, had a 33 percent share of the domestic market in the first half, selling 47,600 cars, the association said. Automobile Craiova SA, a plant that Ford Motor Co. aims to buy from the Romanian government, had a 6.5 percent market share with sales of 9,500 vehicles.

Car exports from Romania, mostly Dacias, increased an annual 37 percent in the first half to 59,000 automobiles, the association said. Domestic production increased 9.4 percent in the period to 118,000.

Thursday, August 9, 2007

Romanian Inflation

From Bloomberg today:

Romanian Central Banker Says Inflation Risk `Serious'

By Adam Brown

Aug. 8 (Bloomberg) -- The National Bank of Romania Governor Mugur Isarescu said risks of missing his inflation forecast are ``more serious'' as wages rise and the government spends more.

Average annual wage increases of more than 20 percent and plans to widen the government budget deficit to account for more-generous social programs and building projects may force the central bank to miss its year-end annual inflation forecast of 3.9 percent, Isarescu said in an interview in Bucharest today.

``We are not introducing uncertainties into our projection,'' Isarescu said. ``I have to stress that our list of uncertainties, risks associated with the projection, were more powerful. This time some risks are pretty serious.''

Isarescu, who has headed the bank since 1990, with a one- year break to serve as prime minister, faces pressure from the European Union to slow inflation and take other measures to ensure the country can adopt the euro After it joined the 27- member bloc in January.

The central bank's inflation projection of 3.9 percent at the end of this year is down from 4.9 percent at the end of last year and 8.6 percent a year before that.

The annual inflation rate in July, to be released by the statistics office on Aug. 10, was between 3.8 percent and 4 percent, Isarescu said. That's lower than the 4.4 percent median estimate of five analysts.

Wage Growth

He said wage growth, which accelerated to an annual 23 percent in June, was also the main factor in the central bank's decision on July 31 to leave its key interest rate, the monetary policy rate, at 7 percent after cutting it four times earlier in the year. At the start of 2007, the rate was 8.75 percent.

``On the macro policies, we have to compensate this rapid increase in wages by something,'' Isarescu said. ``This is why we stopped decreasing the interest rate.''

Wage gains, which include the government's 20 percent pay increase to state employees this year, have ``eroded all the stock of productivity gains which have been added since 2005. Along with the appreciation of the currency, it's also contributing to the erosion of future productivity gains. There is a risk of a correction in incomes.''

Budget Revenue

Isarescu also warned that the government, which plans to widen its budget deficit to 2.8 percent of gross domestic product and 2.7 percent of GDP next year from 1.7 percent of GDP last year, should not overestimate budget revenue to compensate for underestimating them in the past.

``In the last two years we totally underestimated budget revenue,'' he said. ``I warn that it's not at all the case for the government this time to continue this very positive budgetary projection based on the past. There is no room for such a continuation.''

Another serious risk to inflation, Isarescu says, stems from more-volatile swings in the leu, which has gained 6.6 percent against the euro and 11.6 percent against the dollar so far this year, making it the world's seventh-best performing currency. The leu's strength slowed price gains of imported items and goods and services gauged in foreign currencies, such as telephone bills, rents and gasoline.

``There's at least an equal possibility for the exchange rate to go either way at this time,'' Isarescu said. He said the ``very appreciated'' exchange rate may be vulnerable to strong swings in the opposite direction.

``The risk of overvaluation is to move in the opposite direction much more strongly,'' he said. ``Financial markets, particularly the foreign exchange markets, tend to overshoot. The central bank is very limited to doing something to this natural tendency to overshoot.''

He also predicted the country will meet its goal of joining the European Central Bank's exchange-rate mechanism, a precursor to adopting the euro, in 2012 and adopt the currency in 2014, if not earlier.

Romania's Laboured Figures

From the Oxford Business Group (hat tip Romania International Media Watch):

Romania is in the midst of an employment crisis, or two in fact, highlighting the problems a rapidly developing economy faces as it works to expand and modernise.

Figures released by the European Union's statistics bureau Eurostat on May 2, show that the unemployment rate in Romania hit 7.8% in March, up from 6.9% for the same month in 2006. The March figure was also marginally up on the 7.7% for the first two months of the year.

If accurate, and the Eurostat figures do not come close to matching those of Romania's National Agency for Employment (ANOFM), which puts the country's jobless rate at around 4.9%, Romania saw the highest increase in unemployment levels in the EU for the month of March.

Interestingly, by using criteria established by the International Labour Organisation, the Romanian National Statistics Institute put the unemployment rate for the end of 2006 at 7.2%, far closer to the figures released by Eurostat than those of the ANOFM.

This total could be far higher but for the fact that some 2m Romanians now live overseas - almost one tenth of the population - the majority of them working in various EU member states for wages above those on offer in their homeland.

Youth unemployment is another area of concern, with the jobless rate among those between 15 and 24 years old being significantly higher than that of the general workforce, coming in at 21.5%.

These figures come despite Romania having enjoyed record high foreign investment of around $12bn, inflation falling to just under 5% and the economy expanding by 7.7% in 2006 with the National Forecast Commission (CNP) predicting it will be 6.5% this year.

One of the factors adding to the jobless queues in Romania is the prolonged drought in Central Europe, which has been hitting the country's agricultural industries and the rural communities they support. Though rural unemployment still lags behind that in Romania's big cities, it is growing.

Due to the drought, agriculture's contribution to GDP this year is tipped to fall to below 10%, according to a statement by Gheorghe Predila, the head of the National Union of Agricultural Producers of Romania on May 2.

With farmers and workers in the agriculture, forestry and fisheries sectors accounting for 25.4% of the country's workforce, a major downturn in such industries could further push up the jobless rate.

However, at the same time as Romania's unemployment rates are climbing, the country is also experiencing chronic labour shortages in many sectors, especially in its manufacturing industries. Such is the dire need for workers in some sectors like textiles and construction that employers have been forced to look overseas for staff. Recent media reports cited the case of a clothing factory in Bacau in north eastern Romania that has already hired 170 Chinese workers and plans to raise this to 500 after failing to attract local staff, despite offering double the average minimum wage.

While its economy is growing, so too is unemployment, but only in certain fields. With an exodus of skilled or semi-skilled workers to the greener pastures of Europe, Romania has been left with gaps in the workforce it cannot plug, while at the same time seeing the pool of untrained labour deepen. Added to this are the effects of the aging process, with many of the country's skilled workers in agriculture and manufacturing nearing retirement age as well as a shift away from the land and from more menial forms of employment.

It is quite possible that Romania's climbing unemployment rate, coming close to levels experienced in 2002, is more a reflection of an economy in flux than one in trouble. It will take time for the strong foreign investment of last year and the shift from a more rural based economy to one focused on services and production to train and absorb a major part of the existing labour pool.

There will also be a lapse before wages catch up with those in other parts of Europe, though this will reduce somewhat Romania's appeal as a low cost environment for investors.

With the country's population expected to fall to 21m by 2013, down from the 2006 total of 21.5m, mainly due to further emigration, it is likely that there will be job vacancies aplenty in the coming years, especially as the economy continues to grow.

Wednesday, August 8, 2007

Romanian Retail Sales June

From Bloomberg Today:

Romanian June Retail Sales Rise Annual 16% on Increased Wealth

By Adam Brown

Aug. 2 (Bloomberg) -- Romanian retail sales rose an annual 16 percent in June because of higher wages, a stronger currency and increased investment in the retail industry.

The increase, higher than the 9.8 percent annual gain in May, stemmed from a 24 percent advance in sales of food, from 6.9 percent in May, the National Statistics Institute said in an e- mailed news release today. On a monthly basis, retail sales stagnated from May, when they grew 0.3 percent.

Sales in the services industry fell 2.7 percent from a year earlier compared with 5.7 percent in May. Sales of non-food goods rose 8.3 percent, from 13 percent in May.

A stronger currency and higher income boosted consumption in Romania, which joined the European Union on Jan. 1. Average net monthly wages rose an annual 22 percent in May. The leu has gained 11 percent against the dollar and 6.6 percent against the euro so far this year, encouraging Romanians to buy more imports.

EU membership also helped lure more retailers. European companies including Auchan SA, Carrefour SA, IKEA, Metro AG, Praktiker AG and others have announced expansions in Romania and coffee chain Starbucks Corp. opened its first shop in the country.

Today's report doesn't include cars and engine fuels and figures aren't adjusted for any difference in the number of working days.

Tuesday, August 7, 2007

Romanian Inflation Forecast

From Bloomberg:

Romanian Central Bank Sees End-Year Inflation at 3.9% (Update2)

By Adam Brown

Aug. 6 (Bloomberg) -- Romanian central bank Governor Mugur Isarescu said the inflation rate will probably be little changed at 3.9 percent at the end of the year as rising food, fuel and government prices outweigh declines in other goods and services.

The annual rate should rise from 3.8 percent in June, Isarescu said in a news conference in Bucharest today. The forecast is higher than an end-year prediction he made in May of 3.7 percent.

``The outlook of the National Bank of Romania is a calm, linear one,'' Isarescu said. ``There will be slight variations within the target range.''

Romania's entry to the European Union on Jan. 1 has spurred competition that has helped lower some prices while gains in the local currency helps lower others, Isarescu said. They counter the effect of a drought on food prices and increasing costs of fuel and government-controlled prices.

The leu has gained 6.6 percent against the euro and 11.6 percent against the dollar so far this year, making it the world's seventh-best performing currency and slowing price gains of imported items and goods and services gauged in foreign currencies, such as telephone bills, rents and gasoline.

Target Range

The end-year annual inflation rate estimate is still within the central bank's target range of between 3 percent and 5 percent. The 3.8 percent annual rate in June was down from 4.9 percent at the end of last year.

Isarescu lowered the central bank's estimate for end-year annual inflation in 2008 to 3.7 percent from 4.2 percent. He said the lower forecast stems from an expected pause next year in increases of government-administered prices. He also predicted an end-2009 rate of 3.5 percent.

The central bank on July 31 maintained its key interest rate at 7 percent after four consecutive cuts, citing ``continuing disinflation'' and ``slowing economic growth.'' At the beginning of the year, the Monetary Policy Rate was 8.75 percent.

Today's inflation forecast indicates the central bank doesn't intend to decrease its key interest rate for the rest of the year, analysts said.

``We expect interest rates to remain flat at 7 percent for the rest of the year and see a high probability of a rate hike at the beginning of next year,'' Ciprian Dascalu, senior economist at ING Bank Romania, said in a telephone interview today. ``Their baseline scenario for inflation does not include risks from fiscal loosening and wage policies.''

IMF Warning

The International Monetary Fund has warned inflation pressures will intensify in the second half of the year as wages rise and Prime Minister Calin Tariceanu fulfills his promise to ``spend massively.'' The government ran a balanced budget in the first half although it said spending in the second half will drive it into a full-year deficit of 2.8 percent of gross domestic product.

Tariceanu said the government needs to boost spending on infrastructure, education and other social areas to help catch up with standards in other EU members.

The government also decided in June to double payments to the nation's 6 million pensioners over the next two years, with the first increase coming on Jan. 1, 2008. The government predicts the move will cost 2 billion euros ($2.7 billion) next year alone and targets a budget deficit of 2.7 percent next year.