S&P Revises Dn Romania’s GDP, Budget Deficit Forecast

Rating agency Standard&Poor's revised down its predictions on Romania’s economic contraction in 2009, from 5% to 7.6%, and the budget deficit from 6% of the GDP to 6.6% of the GDP, which are nevertheless more optimistic than International Monetary Fund’s latest forecasts on Romania.

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S&P analyst Marko Mrsnik told MEDIAFAX that the forecasts revision was triggered by the worse than expected evolution of the economic situation in the country.

Mrsnik said that S&P estimates a budget deficit of up to -5% from the GDP in 2010, and “it is not expected that the deficit would be below 3% in 2011”.

Nevertheless, the predictions of S&P, which was the first major rating agency to place Romania’s rating in "junk" category, are more optimistic than IMF's forecasts on the country’s GDP contraction and budget deficit.

For 2009, the IMF expects an economic decline of 8%-8.5%, and a slight growth of 0.5%-1% next year, following a gradual recovery expected after mid-2010.

The IMF agreed to allow Romania a higher budget deficit to 7.3% of the GDP this year, well above the initial 4.6% budget cap agreed upon in March, given a worse-than-expected economic contraction in the first semester.

For 2010, Romania and the IMF agreed upon a deficit target of below 6% of the GDP.

"I see the new target more realistic, especially given the sharp GDP contraction and related reduction in revenues as well as surge in spending pressures," Mrsnik said.

On the other hand, Moody's, which is the only major rating agency that still has Romania on a stable, investment-friendly recommendation, has more pessimistic estimations on Romania’s GDP contraction and budget deficit compared with S&P and the IMF.

Moody’s expects Romanian budget deficit to be larger than the recently revised target of 7.3% of the GDP, as the country has a "habit of missing budget deficit targets, and this year seems unlikely to be an exception," Moody’s analyst Kenneth Orchard told Mediafax last week.

The rating agency predicted a deficit gap of 7.7% of the GDP this year and of 5.6% in 2010.

Moddy's also sees Romania's GDP contraction at 8.9% in 2009.

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