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Romania Country Risk Report Q2 2016

Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Growth Will Outperform CEE In 2016
Romania will be the second fastest growing economy in the EU in 2016. Real GDP growth will be driven by robust private consumption,
alongside loose fiscal and monetary policy.
GDP By Expenditure Breakdown
TABLE: ECONOMIC GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERMENT EXPENDITURE FORECASTS
External Trade And Investment Outlook
Wages Threaten Export Outlook
Rapidly rising wages will boost imports and gradually erode Romania's competitive advantage in export-oriented sectors over the next
few years.
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORT FORECASTS
Outlook On External Position
TABLE: TOP 5 EXPORTS
TABLE: TOP 5 IMPORTS
TABLE: CURRENT ACCOUNT
TABLE: CAPITAL AND FINANCIAL ACCOUNT
Fiscal Policy And Public Debt Outlook
Investors Unconcerned With Budget Plans
Romania's budget expansion plans are unlikely to unnerve investors given the country's low public debt stock and robust growth
profile. Credit risk will decline further relative to Poland, where political risk is undermining the country's position as CEE's investment
outperformer.
Structural Fiscal Position
TABLE: FISCAL POLICY
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
Monetary Policy
Rate Hikes On The Cards
The Romanian central bank will begin hiking the policy rate by end-2016, despite persistent disinflationary pressures.
Monetary Policy Framework
TABLE: MONETARY POLICY
Currency Forecast
RON: Short-Term Strength On The Cards
The Romanian leu will appreciate against the euro over the coming quarters, amid a divergence in the trajectory of Romanian and ECB
monetary policy.
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Romanian Economy To 2025
Major Untapped Growth Potential
While Romania will struggle to return to pre-crisis growth rates over the next decade, we believe the country's economy has significant
regional potential. We forecast 10-year real average annual growth of 3.7%, with the country's competitive labour force likely to drive
growth and attract investment over the next few years, despite ongoing political inefficiencies and the modest pace of the eurozone
economic recovery.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Further Progress On Corruption In 2016
Romania's anticorruption push could dent trust in politicians and political stability in 2016, but will be net positive for the country's longerterm
macroeconomic and political development.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Progress Amid Geopolitical Uncertainty
The strength and quality of Romani a's political institutions fall short relative to much of Europe, implying significant challenges ahead
despite the progress made since the fall of communism. With membership of the euro still looking like a distant prospect, there is a risk
of relative institutional stagnation, which could jeopardise some of the improvements made over the last two decades.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: EXPORT AND IMPORT DOCUMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
TABLE: EMERGING EUROPE – TRADE PROCEDURES AND GOVERNANCE RISK
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Tail Risks Mounting Amid Sub-Par Growth
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

Romania Country Risk Report Q2 2016

Core Views Romania will be an economic growth outperformer in Central and Eastern Europe (CEE) in 2016, and the second fastest growing EU economy (behind Ireland). Growth will mainly be driven by household spending, which stands to benefit from public sector wage increases, successive VAT cuts, and improving labour market conditions. Romania’s deflationary trend is supply-side in nature, and we expect the central bank to begin hiking rates in late 2016 or early 2017. Romania’s current account and trade deficits will widen, mainly due to robust domestic demand and imports. Romania’s anti-corruption push will dent trust in politicians in 2016, but will be net positive for the country’s longer-term macroeconomic and political development. Major Forecast Changes While Romania is now one of few EU members still stuck in deflation, we have revised our forecasts for the policy rate to be increased to 2.00% by-end 2016, from a previous 1.75% forecast.


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