Stronger ROL doubles import growth pace

The appreciation of the domestic currency has continued to boost imports, which grew in February at a pace almost double that seen by exports: 18.6%, compared with 10.2% in February 2004.

This means the situation in January, which was temporarily favourable to exports, has been reversed. Against a drop of 8.2% in the euro exchange rate, as compared with the end of 2004, and 5.5% in the dollar rate, imports enjoyed a surge of 19.6% in the first two months of the year compared with the same period last year, with exports increasing by 16.5%.

February saw a fall in exports, even when denominated in ROL, due to pressure caused by the ROL appreciation of 10.3%, compared with February 2004: exports were 6,064 billion ROL against 6,055 billion ROL a year before.

As a result, Romania’s trade gap in February was worth over half a billion euros, nearly 84% higher than for February 2004. The first two months of this year saw a trade gap of over 885 million euros, implying a deterioration of the trade balance by 50% as compared to last year.

From this perspective, the scepticism expressed by foreign analysts, especially the IMF, appears to be fully justified in terms of the authorities’ ability to control the slide of the current account deficit, which widened in the second half of 2004 to almost 8% of GDP.

Imports remain the main source of satisfying the ever-increasing level of consumer demand, which the economy is unable to respond to, despite the accumulating investment in production facilities seen over recent years.

At the same time, there is a continuing stimulation of consumption, despite the negative effects of the upcoming excise hikes: the higher levels of income due to introduction of the flat tax rate has been complemented by the spectacular drop in interest rates for ROL-denominated deposits, as well as the appreciation of the domestic currency, which is making imports cheaper and thus more affordable, even for ROL salaries that do not rise in nominal terms.

On the other hand, the ROL growth tendency, together with the increase in salaries in real terms is weakening the external competitiveness of Romanian commodities, at a time when the restructuring of the sectors that have supported exports has been delayed.

Moreover, even companies that produce exclusively for the domestic market are still finding themselves stifled by more competitive imports in terms of prices.

There are no prospects for improvement in the trade balance in the coming period since domestic producers will cope with new rises in production costs in the wake of the ongoing tariff hikes for utilities and fuel.