A crucial element influencing the current account balance was the €10.86 bln balance of trade deficit, up 69 percent compared to the January-August 2006 period, according to a National Bank of Romania (BNR) press release. Because of the sharp current account deterioration in the first eight months in 2007, financial analysts are skeptical about a 14 percent ratio of gross domestic product (GDP), anticipating a €16.5 bln deficit for 2007.
“The current account deficit must suffer a correction, but this will happen in a few years. It must be carefully corrected, with a realizable soft landing goal in view, not a radical one of bringing the external deficit to a manageable level,” BNR’s Governor, Mugur Isarescu, said yesterday. The BNR official explained that a current account deficit of 14 percent of GDP for this year would be high and would exceed previous BNR forecasts of an 11-12 percent share of GDP. “In the context of a potential €16.5 bln level by year-end, the deficit is unsustainable. There is a risk for the economy, since fiscal and income policy are expansionist,” Raiffeisen Bank’s Chief Macroeconomic Researcher, Ionut Dumitru, told Business Standard.
ABN Amro’s Analyst, Radu Craciun, calculates a 14 percent share of GDP, while Aurelian Dochia, a consultant with Concept economic and business consultancy company, forecasts an optimistic 13 percent share.
The deficit coverage capacity through foreign investment is quite low. Analysts forecast a maximum 50 percent coverage, compared to last year’s 91 percent. Foreign direct investments (FDI) amounting to €4.05 bln (down 6.3 percent compared to January-August 2006) covered 40 percent of the deficit in the first eight months of 2007. The Romanian Agency for Foreign Investments (ARIS) estimated €7 bln in FDI for 2007, compared to €9.1 bln registered in 2006.
