Romanian economy beginning to boil

The lenience of the Romanian authorities in dealing with certain economic trends- the current account deficit increase, the slight monetary relaxation, the import incentives or the raises in the budget-paid sector is starting to show its teeth.

The Romanian economy is showing signs of overheating, which would upset certain macroeconomic balances. Under the circumstances, new correction measures should be taken, which would entail consumption, imports or income adjustments again.

PM Adrian Nastase said the Gross Domestic Product (GDP) was likely to increase beyond 5% and that “an overheating” of the economy was noticeable, as well.

“We will have to be very careful,” Adrian Nastase said. He chose not to detail the issue any further. This year’s GDP was estimated to increase by 4.2%.

Romania’s current account deficit has become too high, reaching $1.2bn over the first five months, that is nearly the entire level registered last year.

Maintaining this trend would be a disaster for Romania, as adjustment measures should be taken right away and this would be very difficult for the Romanian economy to bear. The current account combines every trend in the economy.

Although the National Bank of Romania (NBR) is not publicly expressing its concern about the increase in the deficit, the forex market is already witnessing slight corrections of the ROL/USD exchange rate, performed by NBR, which pushes the rate up.

Increasing the exchange rate is the handiest tool available to contain imports.

NBR last month announced the exchange rate would be much stabler, because it would be used as an anchor in fighting inflation.

Faced with the current account deficit situation, the banking dealers have already started to put pressure on the exchange rate of the national currency, which called for a slight intervention from NBR that sold foreign currency.

Economic analysts are also bringing up interests decrease in the economy, a trend deemed as too abrupt. There is plenty of money on the market at the moment, which can be readily turned into imports.

Arrears in the economy have also gone up, which means many economic operators directed their resources to imports, instead of paying their debts.

Even though the current account deficit is autonomously financed, analysts say the problems have to be considered with the long-term in mind, that is what happens if the trend maintains and there is no funding available.