All sectors (industry, construction, services) had a positive contribution to GDP dynamics in Q3 and they should have also supported a positive dynamics in Q4 2013. We expect the economic recovery pace to improve in 2014 on the back of rebounding domestic demand (very weak in 2013) and growing external demand. We foresee real GDP excluding agriculture to advance by 2.4% this year.
- Annual inflation rate stood at 1.8% yoy in November and probably it ended the year close to 1.5% yoy. Thanks to a favorable statistical base effect, it should reach new historically low levels in Q1 2014 (falling below 1.0% yoy). However, we expect the annual inflation rate to climb towards 3.0-3.5% yoy by Q4 2014 as the favorable statistical base effect would dissipate.
- Interbank interest rates (ROBOR) decreased to very low levels in November- December following the increase in the liquidity excess in the money market. We expect the central bank to reduce the monetary policy rate by another 50bp to 3.5% (two consecutive cuts of 25bp on 8 January and on 4 February). However, this should have no impact on ROBOR rates and neither on RON yields (we think they are already trading at levels consistent with the key rate at or below 3.5%). We look for ROBOR rates and RON yields to increase gradually in 2014.
Consolidated public budget deficit amounted to 1.6% of GDP during Jan-Nov 2013. We think the government has kept the full year’s budget deficit close to the target of 2.5% of GDP. We expect the major fiscal slippages to be avoided in 2014 as well and the public budget deficit to remain below 3.0% of GDP in ESA 95 terms.
- Political noise intensified in December as the animosities between the two key parties of the USL alliance and those between President Basescu and the government ruled by PM Ponta increased. Also, Romania failed to officially send the IMF Board the new Letter of Intent. This halted the completion of the first review of the new precautionary SBA approved in October 2013.
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