FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
BUCHAREST STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The results of local elections held in June
2008 suggest that no single party will gain an
outright majority in the parliamentary
election–which the government has
announced will be held on November
30th–and that the ruling NLP could hold the
balance of power in the new parliament. NLP
may have misgivings about the SDP’s
populist economic policy bias and its
opposition to prosecuting former ministers
on corruption charges. In these
circumstances, the possibility of renewed co-
operation between the NLP and the DLP
cannot be entirely discounted, but the
animosity between the parties’ leading
figures suggests that it would be difficult to
reach a rapprochement. Nevertheless, a
minority or coalition government is expected,
with all parties tending towards a
compromise in order to avoid another
election.
The momentum behind reform in critical
areas of economic policy–including labor
markets, competition policy, agriculture, and
business licensing and property
registration–has slowed since Romania
joined the EU, threatening the pace of real
income convergence. The government has
also failed to address the risks posed by lax
fiscal policy, wage growth in excess of
productivity and the burgeoning current-
account deficit, despite warnings from the
IMF and the EU that the current boom is
unsustainable. This neglect has contributed
to rapidly rising inflation and growing external
deficits. Investor confidence has been further
eroded following the collapse of Lehman
Brothers, a leading US investment bank, in
September 2008 and the subsequent
intensification of the global financial crisis.
This has led to sharp falls in the value of the
lieu and several suspensions of trading on
the stock exchange.
Economic Performance
The crisis in international financial markets
has entered a new phase since the collapse
of Lehman Brothers in September. The
meltdown in financial markets and banking
systems across the developed world marks
the end of an era of ample liquidity, cheap
credit and low inflation. The crisis has led to
an abrupt contraction in global liquidity and
has had a strong negative impact on
investors’ appetite for emerging-market risk.
It has also contributed to growing uncertainty
over the prospects for world GDP growth.
The pace of growth in the world economy
slowed sharply in 2008 and is expected to
slow sharply in 2009, with recovery starting
only in 2010, as weaker growth in the US and
other developed economies feeds through to
emerging markets. Romania’s large external
financing requirement makes it vulnerable to
a contraction in the availability of external
liquidity, and tighter credit conditions will
have a negative impact on investment. There
is also a risk that EU demand for Romanian
exports could fall sharply, although this has
been offset so far by the rapid growth of
exports to other markets. Weaker economic
growth will lead to a fall in oil prices in 2009,
with the average price for dated Brent Blend
falling from an estimated US$110/barrel in
2008 to US$91/b, rising back to US$100/b in
2010 as world economic conditions begin to
improve. The US dollar has weakened
against the Euro in 2008, but will strengthen
slightly in 2009-10 as the US moves into
recovery before the Euro zone.
The forecast for real GDP growth in 2008 is
8.6% (from 8% previously), largely as a result
of the improved outlook for agricultural
output in the third quarter of 2008, as well as
the continuing strong growth of household
consumption and fixed investment. Growth is
expected to slow to 4.8% in 2009 and 4.6%
in 2010, as fiscal and incomes policies are
tightened in the wake of the election, and as
Romania feels the impact of the global
financial crisis.
After rising to an estimated 7.8% in 2008,
average consumer price inflation is expected
to slow to 5.4% in 2009 and 4.2% in 2010.
The increase in inflation in 2008 was fuelled
by the steep rise in food prices, following a
severe drought in 2007 and increases in
world market prices for agri-food products;
the depreciation of the leu since the onset of
the international financial crisis in July 2007;
rapid wage growth; and surging producer
prices, stimulated by rising energy costs. A
high degree of uncertainty is attached to the
development of the exchange rate over the
forecast period. The Leu steadied, and even
strengthened a little, between the end of
January 2008 and the end of August, but has
been under sustained depreciation pressure
since the international financial crisis entered
a new phase following the collapse of
Lehman Brothers in September. It is
expected that the currency to be subject to
continued bouts of volatility until a degree of
stability returns to the international markets.*
* The Economic Intelligence Unit Ltd., October 2008.
Key Information Contacts
National Securities Commission www.cnvmr.ro
Ministry of Public Finance www.mfinante.ro
National Bank of Romania www.bnro.ro
UNOPC www.unopc.ro
National Institute of Statistics www.insse.ro
Romanian capital market www.kmarket.ro
2006-ORIGINS OF GROSS DOMESTIC PRODUCT (%)
Services
56.0
Industry
2006-COMPONENTS OF GROSS DOMESTIC PRODUCT (%)
Agriculture & forestry
34.9
Private consumption
Change in stocks
80
Public consumption
Gross fixed investment
Exports of goods & services
Imports of goods & services
78.8
60
40
20
0
9.1
32.4
24.2
9.1
0.5
-20
-40
-60
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