GDP up 4.6% in Q3, inflation at 6.5%

Raiffeisen’s economic forecasts in the first three quarters of 2007 are below the 5.8 percent level in terms of relevant data obtained for mid-year 2007, due to negative results in agriculture, and GDP will rise by a mere 5.3 percent.

Although Romania’s economic advance was 5.6 percent in Q2, double the 2.8 percent level reported for EU 27 by Eurostat, the statistical office of the European Communities, forecasts for the third and fourth quarters are below expectations.

The negative impact of agriculture on GDP and the trade balance deficit are the main factors putting pressure on GDP’s advance. Analysts estimate a 5 percent economic growth rate in 2007, far below the 7.7 percent increase reported for 2006.

The National Prognosis Commission (CNP) revised estimates on the evolution of GDP in 2007 downwards, to 6.1 percent. Services and construction will be the sectors boosting Romania’s economy, as industry registered a slight drop in terms of contribution to GDP.

According to Raiffeisen experts, the gross added value in industry, services, and construction, at the end of the third quarter will be close to the 8 percent level registered in the first quarter.
Statistics indicate that main agricultural crop production will amount to 50-80 percent of last year’s registered value, due to severe drought.

Furthermore, higher prices for agricultural products are due to agriculture’s poor performance and its negative impact on inflation. Main engines of the September annual inflation increase, of 6.03 percent, were a 1.94 percent price rise for food products and a 1.4 percent cost increase for services, due to the depreciation of the leu.

“We therefore anticipate high monthly inflation rates in the near future,” said Raiffeisen experts.
Massive increases in salaries, exceeding 20 percent in 2007, in non-governmental loans, and in aggregated demand, contributed to lower expectations in terms of inflation.

“We believe BNR [The National Bank of Romania] should raise the key interest rate by at least 0.5 percentage points in the October 31 session,” said Raiffeisen specialists.

Economic boost
Services and construction will be the sectors boosting Romania’s economy, as industry registered a slight drop in terms of contribution to GDP.