Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Romania and the international financial and economic crisis Ionut DUMITRU Chief-Economist Raiffeisen Bank Romania Slide 1 / 23.05.2017 International crisis – effects on Romania No direct effects of the subprime crisis on the Romanian economy – Banks in Romania had no direct exposure to the subprime market in the US, while mother banks abroad had also only a very low exposure to “toxic assets”. Important indirect effects because Romania is highly dependent on the external funding (current account deficit stood at 12.3% of GDP in 2008). External debt and the debt of banking sector (% of GDP, 2008 Q2) Current account deficit (% of GDP, 2008 Q2) LV LT EE RO BG SK HU PL 5 CZ 2.2 0 120 100 -1.6 -5 -3.1 -4.2 -5.6 -7.1 -10 -6.9 -6.1 -2.5 80 -5.0 60 -8.7 40 -12.7 -15 140 -14.5 -15.5 -14.1 -13.9 20 -20 -19.7 0 -24.2 -25 Current account balance +FDIs (%of GDP) Current account deficit (%din PIB) Source: Eurostat, National Bank of Romania, Raiffeisen RESEARCH Slide 2 / 23.05.2017 LV EE HU BG LT SK PL Total external debt (% of GDP) Short-term external debt (% of GDP) Debt of banking sector (% of GDP) RO CZ Romania – main challenges The crisis on the international markets and the large domestic macroeconomic disequilibria raise important challenges for the government and the central bank Challenges in short-term – – – Securing external financing Securing stability of the financial system Dealing with the downturn in the economic activity Challenges in long-term – – Slide 3 / 23.05.2017 Continuing the real and nominal convergence process in order to become a member of the Euro area Securing sustainability of the current account deficit Romania – securing external financing (1) Romania was strongly affected by the increase in risk aversion due to large macroeconomic imbalances and inappropriate economic policies (i.e. proc-cyclical fiscal policy) – S&P and Fitch cut the country’s ratings to non-investment grade 5-years CDS for CEE countries 800 700 Romania Bulgaria Hungary Source: Bloomberg, Raiffeisen RESEARCH Slide 4 / 23.05.2017 Poland Jan-09 Nov-08 Sep-08 Jul-08 May-08 0 Mar-08 Pressures for leu depreciation 100 Jan-08 200 Nov-07 Cost of external funds increased sharply 300 Sep-07 400 Jul-07 – – Foreign banks reduced additional funding to their local subsidiaries FDIs inflows are likely to decrease in the next period Foreign investors might decide to repatriate their profits 500 May-07 – 600 Mar-07 Availability of external funding decreased rapidly in the context of an ongoing process of international deleveraging Jan-07 Czech Republic Romania – securing external financing (2) Slide 5 / 23.05.2017 Romania should ask for a multianual financial package from the European Commission, IMF and other international financial institutions (WB, EBRD, EIB). Romania – Securing stability of the financial system Stability of the exchange rate is a “vital” issue for the economy The leu was on a depreciating trend in last months, but the move was in line with developments in the other regional currencies. Regional exchange rates Loans in foreign currencies (% of total) 100 130 125 EUR/ RON EUR/ HUF EUR/ PLN EUR/ CZK 80 120 60 115 40 110 20 105 100 Czech Republic Poland Romania Hungary Lithuania 90 Croatia 95 Estonia Latvia 0 Loans to companies in FCY (% of total) 85 Dec-07 Feb-08 Apr-08 Jun-08 Fixed base index, 29 December 2007=100 Slide 6 / 23.05.2017 Aug-08 Oct-08 Dec-08 Loans to households in FCY (% of total) Source: Reuters, National Bank of Romania, Raiffeisen RESEARCH Romania – dealing with the downturn in the economic activity (1) Romanian economy expanded by more than 6% per year between 2001-2007 However, economic activity would decelerate rapidly in the next quarters (with important recession risk) – Recession from Euro area puts downward pressures on exports – Decrease in external funding limits capacity of banks to extend lending and of companies to invest sharp deceleration of consumption and investments Average GDP growth rate in NMS (2001-2007 ) Worst performers in industry at the end of 2008 (% yoy) Real GDP growth (% yoy) Forecasts Sep-08 Oct-08 Nov-08 Metallurgy -18.3 -25.7 -41.1 Textiles -33.0 -39.5 -34.3 12.6 -3.2 -29.7 9.1 8.5 7.9 Average 2001-2008 = 6.2% 6.1 Transport means (vehicles) 6.2 5.6 Chemicals 4.5 3.8 2.1 Source: Eurostat, Raiffeisen RESEARCH Slide 7 / 23.05.2017 LV EE LT SK RO BG CZ PL 5.7 HU EU 27 EA 1.8 4.0 5.1 5.2 8.5 4.2 7.9 6.2 7.1 0.5 11.7 -6.2 -28.3 Electric appartus, machinery -16.4 -21.9 -25.3 Other transport means -11.3 -23.8 -19.7 0.9 -10.5 -15.3 Fabricated metal products -4.3 -12.2 -12.1 Pulp and paper products -10.6 -9.4 -11.4 Radio, television, optical 1.5 2001 2002 2003 2004 2005 2006 2007 2008 2009F 2010F Romania – dealing with the downturn in the economic activity (2) The government’s space of manoeuvre is limited The large budget deficit (around 5% of GDP) and the downward pressures on the public revenues limit the capacity of government to expand public spending in order to offset the slowdown in private aggregate demand Financing a large budget deficit is also difficult (and costly) due to the financing constraint both on the local market and on the external markets This explains the lack of a strong anti-crisis package for the economy At the moment, the government should concentrate more on the increase of public spending efficiency and on the increase of structural funds absorption Consolidated budget deficit (% of GDP) 2003 2004 2005 2006 2007 2008E 0% -1% -2% -3% The central bank’s space of manoeuvre is also limited Central bank remains focused on the exchange rate stability As a result, the stance of the monetary policy is likely to be eased only gradually. A more coherent macroeconomic policy mix (more restrictive Government policies) will reduce the monetary policy burden. -4% -4.9% -5% -5.2% -6% Consolidated budget deficit (% of GDP, national methodology) Consolidated budget deficit (% of GDP, ESA 95 methodology) Source: Finance Ministry, Raiffeisen RESEARCH Slide 8 / 23.05.2017 Romania – dealing with the downturn in the economic activity (3) There are some mitigating factors which might help the economy to avoid a hard landing in the next period: – – – – – Relatively lower share of credit in GDP; The banking system is fundamentally sound and profitable; Lower dependency on exports; Exchange rate flexibility; Large EU structural funds available for Romania. Non-government credit in 2007 (% of GDP) Exports of goods and services in 2007 (% of GDP) 120 100 100 80 80 60 60 40 40 20 20 0 0 RO PL Euro area LV LT BG Source: Eurostat, ECB, Raiffeisen RESEARCH Slide 9 / 23.05.2017 SI EE CZ HU SK RO PL SK CZ HU LT BG EE LV EA Romania – Appropriate measures required to support the real convergence process Long-run economic growth potential is strong given that GDP per capita is very low The government should avoid to pursue pro-cyclical fiscal policies and it should concentrate on investment expenditures (especially infrastructure) an absorption of structural funds; The pattern of GDP growth should change. A more appropriate policy mix is required. 82 89 Czech Republic Slovenia 93 98 101 Greece 77 Malta Hungary 75 Portugal Lithuania 72 Estonia Latvia 69 Slovakia 60 Croatia 42 55 58 63 54 Poland 41 Turkey 38 Romania European Union 27 =100 Cyprus GDP per capita at purchasing power parity in 2007 (% of EU 27) 107 110 Note: The dark blue lines denote the value of the indicator in 2000 Source: Eurostat, Raiffeisen RESEARCH Slide 10 / 23.05.2017 Euro area Spain Italy Bulgaria Macedonia 29