Bad news: Romanian economy drops 7.2% in 2009. Inflation up 1.68% in January

Romania didn’t manage to get out of the recession in the last 2009 quarter. The Romanian National Statistics Institute published on Friday, February 12, data indicating that the GDP contracted by 7.2% in 2009 and the inflation increased to 1.68% in January 2010, in contrast to 0.3%, the inflation in December 2009.

Nearly all European economies recorded modest economic growth during the last 2009 quarter, except Romania. If Romanian analysts, bankers and economists estimated an economic growth up to 0.6% for the last year’s quarter, the INS puts Romania under a cold shower with a re-evaluation of all prognosis.

The reasons leading to the economic low and the rise of inflation are the increase of taxes for consumption products, the delay in reforming the budget sector with a drop of inner demand as background. The rises in taxes made prices soar 13.87%, which had a strong influence on the consumption prices index.

The lack of reform in the budget system and the absence if investments with a multi-folded effect in the economy made the sector on which the analysts placed their bets, namely the industry, to stop receiving enough money supplies to move the economy. Plus, the State postponed important payment obligations, which affected growth in various economic sectors.

Commercial bank president: everything comes at a cost. There will be other bills

„Everything comes at a cost. When you restructure by cutting vacancies, when you don’t invest, the bill you’ll have to pay is going to be consistent. Instead of supporting the sectors that could help, instead of de-fiscal certain fiscal niche areas, you will end up paying more that you imagine. There are probably other bills to come as well”, the president of a local commercial bank told HotNews.ro.

The inner demand decrease is explained by cuts in crediting, by population’s pessimists expectations. The most affected sector is the long-term use goods, a Central Bank (BNR) report on inflation show. In short, a fiscal relaxation in the sectors that could have provided an economic growth, in the budget reform makes toe coming out of the recession to be postponed until the third quarter of 2010.

Commerce dropped 37.3% in 2009

According to the INS, non-food products were 3.2% more expensive in January 2010 than in December 2009. Cigarettes cost 13.87% more, the energy went 4.2% up and fuels are 3.42% more expensive. Services are 0.36% more costly on average, with the highest increase in water and sanitation services – 1.17%, and public transport in the cities – 1.08%. Telecoms are 1.87% cheaper.

Commercial businesses dropped 37.3% in 209, against 2008, mainly because car commerce, which saw a 44.6% minus. Regarding market services for the population, the business figure is lower, both as gross series – 15.8%, and as series adjusted according to the number of active days and the activity per season – 14.1%.

The Industrial output, down 5.5%

The Industrial output as gross series dropped 5.5% on average compared with the previous year, while the adjusted gross output saw a 5.7% drop. Most good production sectors saw minuses last year when compared with 2008: long-tern use goods: -15.7%, temporary goods: -9.5%, frequent use goods: -8.4%, capital goods’ industry: -1.1%. But the energy industry went up by o.3%.

BNR increased the 2010 inflation prediction

Romania’s Central Bank adjusted upwards the 2010inflation prognosis, from 2.6% to 3.5% and estimates the inflation rate for 2011 to be 2.7%. Plus, BNR governor Mugur Isarescu underlined the 3% inflation target for 2011 and said that the target for this year remains a 3.5% rate. In 2009, the inflation figures read approximately 3.5%, +/- 1%.

Mugur Isarescu said that the situation of Romanian inflation will remain uncertain, even if the political doubts have vanished. The agenda for 2010 will be difficult he says: „We remain in a great uncertainty, despite losing political doubts. The governance programme has been issued. The IMF relationship was set-up. Even so, the uncertainty remains great.”

The inflation represents one of the criteria featured in the external finance agreement signed by Romania, worth of 20 billion euros and coordinated by the International Monetary Fund. Additionally, the inflation is one of the convergence criteria that Romania needs to carry out in order to join the euro zone.