ING Revises Romania ’09 GDP Growth Forecast To -6.5%

ING Bank Romania slightly upgraded its forecast on Romania's economic growth in 2009, saying that it now expects the country’s gross domestic product to decline by 6.5% at year-end, from a 6.7% contraction previously estimated.

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The lender kept unchanged its estimate on a 1.6% economic growth in 2010, but warned about increasing risks related to budget policies.

ING analysts said the authorities should continue easing the monetary policy in order to sustain the recovery in 2010, focusing on stimulating internal demand.

The forecast on the positive economic evolution in 2010 is based on the central bank's willingness to cut its key monetary rate to 6.75% by end June, from 8% currently, ING analysts said.

However, such rate cuts can only be applied if Romania experiences political and budgetary stabilization, the analysts mentioned.

Romania's GDP shrank by a seasonally adjusted 0.6% in the third quarter compared with the previous quarter, government data showed. The figure is close to ING's prediction for a 0.5% quarterly decline.

In unadjusted data, GDP fell 7.1% on the year in the third quarter. In the second quarter, the annual contraction was at 8.7%.

According to ING, the improvement is largely due to better-than-expected results in agriculture during the third quarter.

ING analysts estimated Romania's agriculture performance will decline by 15% in the third quarter.

Romania's good agricultural year also reflected on the annual inflation rate, which slowed for the eight consecutive month to 4.3% in October.

ING analysts believe the annual inflation will be rather low in the first quarter of 2010, but the inflation might rise starting with the second half of the year. They said Romanian central bank's inflation targets are too optimistic.

For 2009, Romania's central bank targets a 3.5% inflation rate, with a one percentage point variation band around the target. The same objective was set for 2010.

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