Bloomberg News

Romania May Enter Recession in First Quarter, Dragoi Says

March 09, 2012

Romania’s economy may post its second quarterly contraction and “enter a technical recession” because of cold-weather disruptions, Finance Minister Bogdan Dragoi said.

The economy may shrink in the first quarter compared with the previous three months of last year and will probably grow 1.5 percent from the same period a year earlier, Dragoi said during his first conference in Bucharest since his appointment.

“The economic decline was prompted by a block in the transfer of goods, but the demand for these goods is there and will come back later in the year,” Dragoi said. “The bad weather has also impacted budget revenue and we’ve seen a decline there as well.”

Romania’s economy, which exited the worst recession on record last year, will probably face a growth slowdown this year to as low as 1.5 percent as a potential Europe-wide recession hurts exports from the eastern European country, home to Dacia SA cars, Dragoi said. The European Union’s economy is facing its second recession in less than three years after gross domestic product contracted 0.3 percent in the fourth quarter.

Six out of the 17 nations in the euro area are already in a recession, and the region’s economy will shrink 0.3 percent this year according to European Commission forecasts.

Spain, Czech Republic

Spain’s economy contracted 0.3 percent in the fourth quarter of last year, while Italy shrank 0.7 percent. The Czech economy also returned to recession for the first time since 2009 after its gross-domestic product contracted 0.1 percent in the last quarter of 2011 amid government spending cuts.

Romania aims to meet its target of having a budget deficit of 1.9 percent of GDP by the end of the year from 4.4 percent in 2011, even as the ministry is assessing “a multitude of scenarios” to increase state wages or cut social security contributions or both from June, Dragoi said.

A social contribution cut of about 5 percentage points would cost 2.3 billion lei ($698 million) from June this year, while wage increases of 16 percent needed to restore state salaries to pre-austerity levels would cost 2 billion lei as of June, he said.

The government may sell euro- or dollar-denominated bonds on international markets in the second half of the year, after raising $2.25 billion through bond sales on the U.S. market this year, Dragoi said. The ministry seeks to raise 2.5 billion euros ($3.3 billion) this year through bond sales on foreign markets this year.

“We are monitoring the markets all the time, because we have the medium-term notes program that gives us the flexibility to issue bonds any time,” Dragoi said. “But I am convinced that we will sell bonds in the second half of this year, we’ll just have to assess the market liquidity and appetite.”

To contact the reporters on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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