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Wednesday, September 3, 2008

Romania Producer Prices Accelerate Again In July, Wages Continue To Rise

Romanian producer price inflation accelerated to the fastest pace in four years in July as energy and labor costs soared and a weaker leu nudged up import prices. The cost of goods produced in factories and mines rose an annual 20.3 percent the fastest rate since August 2005, compared with 19.4 percent in June, according to data from the Bucharest-based National Statistics Institute. Prices grew 1 percent on the month, following a 2.1 percent rise in June.



Prices of manufactured goods rose an annual 23.2 percent in July, compared with an increase of 22.1 percent in June. Price growth in the mining and drilling industries slowed to 16 percent from 17.8 percent and costs of electricity, natural gas and water rose an annual 5.5 percent after a 0.1 percent increase in June.

Wages Up An Annual 25.8%

Romanian annual wage growth, a key factor behind the central bank's recent interest rate increase drive, accelerated further in July as rising investment continued to boost demand for workers.

Net monthly wages rose an annual 25.8 percent to 1,273 lei ($564), compared with a 24.4 percent increase in June, according to the latest data from the Bucharest-based National Statistics Institute. Wages rose 2.7 percent on the month.





Wage increases have helped boost retail sales and imports, and propelled economic growth up to 9.3 percent in the second quarter. The central bank has also said higher wages drove annual inflation to a three-year high of 9 percent in July and forced it to raise its key interest rate to 10.25 percent, currently the highest in the EU.

Domestic demand has also been fuelled by strong inflows of worker remittances and a lending boom. Total private sector debt (households and companies) was up by an annual 55.8 percent in July. Now the interesting thing is that this rate of increase is now slowing, and if the slowdown in the rate of increase continues then construction will gradually grind to a halt as we have seen in other credit and construction boom driven economies.




The rate of increase has been slowing since it hit a peak in January at 66.8%. But a word of warning needs to be added here, since the stock of loans includes a very large proportion - 54% in July - which are forex denominated (mainly euros), and the leu has been rising against the euro until very recently (driven by the high yields on offer following the interest rate rises at the central bank), which means that the leu value of the stock would decline, so there is a valuation component here. Nonetheless I think it is a pretty safe call to say that the credit boom in Romania is now past its peak, and what awaits us is the inevitable slowdown.

Monday, September 1, 2008

Romania's Economic Growth Accelerates In Q2 2008

Romania's economy grew faster than generally expected in the second quarter, fuelled by a lending boom, increased investment and rising wages. The economic expansion accelerated to an annual 9.3 percent from 8.2 percent in the first quarter, according to preliminary data out today from the Bucharest-based National Statistics Institute.



Net wages were up 24.4 percent in June, while annual private debt was up 65%. As a result domestic investment grew in the second quarter by 30 percent from the same period last year - and reached 6.5 billion lei ($2.7 billion) - led by a 35 percent increase in construction. Central bank Governor Mugur Isarescu forecast 9 percent growth for 2008 last month, and warned the economy is "overheating" with upward pressure on inflation and a deteriorating current-account deficit.

To try to restrain domestic deman the central bank raised its main interest rate to 10.25 percent in July, the highest in the EU, as the inflation rate rose to a three-year high of 9 percent.