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News 06 Jul 12

Political Crisis Worsens Romania's Economy

Political tensions in Romania are sending the wrong signals to international markets, analysts warn.

Marian Chiriac

The Romanian national currency, the RON, on Thursday hit a new low against the euro, reflecting the increasing political instability in the Balkan country.

The RON ended the day at a rate of RON 4.4796 to one euro. The RON has lost around 3.5 per cent against the euro since the end of 2011.

Analysts say the steady depreciation of the currency is just one of the effects of ongoing political crisis in Romania, which is affecting whole economy.

“The Romanian economy is a very sensitive one, dependent on the political situation, as most investments are state-supported. That’s why any disruption at high level hits it,” analyst Claudiu Cazac said.

“No foreign investor will come to a country where the political disputes seem so endless,” he added.

For weeks, Romania has been gearing up for a major fight between President Traian Basescu and Prime Minister Victor Ponta, whose new leftist government has a majority in parliament. The ruling coalition has now started impeachment proceedings against Basescu.

Parliament is due to debate the call to strip the President of his official powers on Friday in a special session.

Romania’s economy is already in crisis, according to official data, and economists are worried for the immediate future.

The National Statistics Institute, INS, on Wednesday confirmed that Romania entered into recession during the first quarter of the year, when the economy dropped by 0.1 per cent on the last quarter of 2011.

The economy is deemed to be in recession as GDP shrunk quarter-on-quarter for the second time in a row.

Romania’s Gross Domestic Product, GDP, was 32.6 billion euro in the first quarter. Hotels and restaurants were down 0.3 percent, real estate deals by 1.4 per cent, while financial brokerage was down 1.2 per cent.

Romania was previously in a so-called technical recession between 2008 and 2011, for two-and-a-half years.

Unemployment rose in May to 7.7 per cent, up 0.3 per cent on the previous month, according to the latest official data.

Analysts expect a further fall in the economy for the rest of the year, below the official estimates of the government.

Recently the International Monetary Fund, IMF, revised Romania's annual economic growth forecasts for 2012 down from 1.8 to 1.5 per cent.

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