The most challenging autumn in a decade is coming with a crucial question for the business environment: are there any chances we will see growth again or are we sliding even further into recession?
Insufficient demand, the financial crunch, the high loan interest rates and RON decline are the main threats businesspeople are facing. All this comes against an overall climate of uncertainty, marked by the upcoming presidential elections that are generating renewed tensions between ruling parties, PD-L (Liberal-Democratic Party) and PSD (Social-Democratic Party), and is denting the government’s capacity to make efficient economic decisions for the exit from the crisis to come sooner.
The arrearage that has spread to the general economy will not go away too soon as, on the one hand, consumption demand is still very low, and, on the other hand, access to loans is still tight as companies’ risk profile deteriorates and bankers’ appetite for new exposures is falling.
In the second quarter, consumer spending fell by over 13%, while investments in the economy plunged by almost 26%. Still, in this environment marked by uncertainties, hopes reside in the rebound of industrial output, which climbed by 4.5% quarter-on-quarter. Many companies’ survival depends, though, on a demand rebound in Western Europe. Though, the lack of cash is highly complicating business operations.
Investment banker Doru Lionachescu of Capital Partners M&A consultancy, says the crisis fallout is not felt in the banking system as banks have managed to offset profit drops by increasing interest rates for good customers.
Thus, it is only now that the hard part begins, at the end of this year, when the economy is returning to banks the “present” it got from them, namely the interest hike. Lionachescu says the market is not improving and sooner or later banks will have to also accept the alternative of taking stock from companies, so as not to collapse under the debt burden.
On the other hand, RON/EUR exchange rate fluctuations continue to give the jitters especially to people with foreign currency loans. However, some RON appreciation forecasts have also appeared on the market, and most analysts believe the NBR will not allow for a decline beyond 4.30-4.35 RON/EUR by yearend, now that the foreign currency reserve has reached a new all-time high of 27.7 billion euros and Moody’s rating agency kept Romania in the ‘investment grade’ category.
Companies’ dwindling business has caused 550,000 people lose their jobs.