Romania's Central Bank Governor Mugur Isarescu: The 2009 economic growth forecast drops below 5.5 percent

During a press conference on Monday, National Bank of Romania (NBR) Governor Mugur Isarescu made a briefing of the quarterly report. Thus, the governor stated that inflation rate decreased in the third quarter of the year -- mainly due to the country’s agricultural sector good outcome this summer.

Mr. Isarescu said that there is no clear projection yet regarding the policies to be implemented by the next government to cut spending. For the next year annual inflation, Romania’s central bank admits it has a poor estimation (due to the global volatility). Mr. Isarescu said that the 2009 yoy inflation could be anywhere from 1 percent up to more than 5 percent. The factors to influence inflation will be: the policies adopted by the future government, volatility of foods’ prices, and the exchange rate.

Earlier, this morning, Romaia’s central bank made public (on its website) the ‘NBR's International Reserves in October 2008’:

At end-October 2008, foreign exchange reserves of the National Bank of Romania stood at EUR 27,318 million, compared to 26,021 at end-September 2008.

The EUR 1,297 million increase recorded in the reported month owed to the following:

• EUR 4,402 million worth of inflows representing the change in the foreign-exchange reserve requirements of credit institutions, the funds deposited in the account of the European Commission, transactions in the interbank market, income from the management of foreign reserves, a.s.o.;
• EUR 3,105 million worth of outflows consisting in the change in foreign-exchange reserve requirements of credit institutions, transactions in the interbank market, principal repayments and interest payments on public and publicly guaranteed external debt, a.s.o.

Since the foreign reserves consist of assets denominated in euro, US Dollars and other currencies, the important changes of the exchange rates of these currencies in the international markets have influenced both the inflows and the outflows.

The gold stock held steady at 103.7 tonnes. However, following the developments in the world price of gold, its value amounted to EUR 1,908 million.

The international reserves of Romania (foreign currencies and gold) at October 31st, 2008 stood at EUR 29,226 million, compared to EUR 28,102 million at September 30th, 2008.

In November 2008, payments due on public and publicly guaranteed external debt amount to EUR 57 million.

EU: Euro economy to barely grow next year

BRUSSELS, Belgium — The European Commission forecast Monday (Nov 3, 2008) that the economy in the 15 countries that use the euro will barely grow next year, expanding just 0.1 percent as the financial crisis hits hard, AP reports.

The currency zone's largest economies will come to a standstill or shrink, it said in its latest economic outlook, with Germany, France and Italy not growing at all at 0.0 percent.

Ireland and Spain will see output fall and jobless lines and government deficits swell, the EU executive said.

Among EU members that don't use the euro, Britain's economy will slip into recession with minus 1 percent growth, while Baltic states Estonia and Latvia will also see negative growth.

The 27-member EU warned that things may get even worse as forecasters could not rule out a deeper credit crunch that would brake the economy, strain government finances and put a near-freeze on household spending.

Even slightly higher costs for borrowing — an extra risk premium of 0.5 percent on interest rates — would tighten credit available to households and could "trigger an outright recession, a decline of 1 percent of GDP in the euro area," it said.

The labor market should deteriorate sharply next year, it said, with unemployment in the euro-zone climbing to 8.4 percent in 2009 from a decade-low of 7 percent at the end of 2007.

Spain will see the worst of this as a housing bubble bursts and tourism slows. The jobless rate may shoot up to 15.5 percent in 2010 from 10.8 percent this year, the EU says.

EU economists said the outlook for the euro area and the wider 27-nation European Union "remains bleak" with growth contracting this winter before recovering gradually toward the end of next year as exports start to pick up.

It says the euro area likely shrank in the third quarter of 2008 and may grow 1.2 percent for the entire year, 0.1 percent next year and 0.9 percent in 2010. It forecast EU gross domestic product this year at 1.4 percent, falling to 0.2 percent in 2009 and 1.1 percent in 2010.

The only silver lining it picks out is a slide in inflation, down from record highs to an average of 2.2 percent next year as oil prices cool swiftly. This may increase the amount of money people have to spend but they may be less likely to shop if they fear job losses. Private consumption is nearly stagnant, it says.

Oil prices should fall from a 2008 average of US$104 a barrel to US$86 next year, it says. But food and metal prices will probably stay at high levels.

The cost of bailing out troubled banks while tax revenues shrink and welfare payouts swell will see governments pile on debt and run bigger deficits, the EU executive warns.

It says France and Ireland will break EU budget rules in 2009 by running a yearly government deficit of more than 3 percent of GDP. The ceiling is intended to keep their shared currency stable. Britain, Latvia, Lithuania, Romania and Hungary will also likely exceed the limit.

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The Commission also expressed concern about Romania and, to a lesser degree, Bulgaria, which like the Baltics have high current-account deficits. Their growth rate is set to slow, Reuters reports.

"Romania's economy is overheating, but growth is set to slow down. Nevertheless, the current-account deficit will remain at worrying and only slightly falling levels," it said.

The European Commission revised its estimation of Romania’s GDP deficit this year from 2.9 percent to 3.4 percent.

Earlier, the ratings agencies have slashed their outlooks and debt ratings for a string of emerging European and other countries as the credit crunch sparks crises in several economies, Reuters reported on Oct 30.

ROMANIA’s country rating was set at: BB+ (by S&P), Baa3 (by Moody’s), and BBB (by Fitch) -- with a Moody’s rating as ‘stable’.

On Oct 27, Standard & Poor's cut Romania's foreign currency credit rating one notch to BB+, putting it at junk status with a negative outlook and citing a lack of policy response to mounting economic risks.

The International Monetary Fund (IMF) and the World Bank (WB) started visit to Romania between Nov. 3-14 to assess its financial system, but no financial assistance for Bucharest will be discussed, the IMF said on Saturday.

Some economists have said Romania may have to seek international help, including from the IMF, to shore up investor sentiment and safeguard its economy from the impact of the global financial crisis.

However, both Bucharest and the IMF have so far said no agreement was in the works. Romania's neighbours Hungary and Ukraine have both sought help from the lender.

"The Romanian authorities requested this follow-up mission long ago, and its actual timing was decided last year," the IMF said in a statement.

"The mission will not discuss or negotiate IMF financial assistance to Romania."

Palestinian Authority Chief sees no peace deal with Israel this year

Palestinian President Mahmoud Abbas, right, reviews the honor guard together with his Romanian counterpart Traian Basescu, left, during a welcoming ceremony at the Cotroceni presidential palace in Bucharest, Romania, Monday, Nov. 3, 2008. Abbas is on a two day visit to Romania. (AP Photo)

BUCHAREST - Israel and the Palestinians will not be able to reach a peace agreement before Washington's target date of the end of this year, Palestinian Authority President Mahmoud Abbas said Monday, at the start of a two-day visit to Romania.

"I don't think it's possible to clear an accord by the end of this year as both the U.S. and the Israeli administrations are now busy with other matters and the very short time does not allow for striking such a deal," Abbas said, as reported by Reuters.

Mr. Abbas met this morning with Romania’s President Traian Basescu. After the meeting, Mr. Basescu stated that “Romania does not want to interfere with the Israeli-Palestinian peace talks.” Instead, Mr. Abbas said Romania has the necessary qualification to help negotiations between the two parties.

"I would like to say after the election processes are over, we will resume negotiations and contacts to clear all the outstanding files in discussion. We will try to close these files because up until now none have been closed," Abbas also said, speaking through an interpreter.

The United States chooses a new president Tuesday and Israel is to hold a parliamentary election on February 10.

Washington launched the latest peace drive at a conference in Annapolis, Maryland, last year with the hope of shepherding Israel and the Palestinians toward a peace deal before President George W. Bush leaves office in January.

But Israel's failure to halt Jewish settlement in the occupied West Bank, divisions among Palestinians and political instability in Israel have made the prospects of meeting Washington's target date for a deal ever more elusive.

Sunday, the Quartet of Middle East peace mediators -- the United States, the European Union, the United Nations and Russia -- plan to convene in Egypt's Red Sea resort of Sharm el-Sheikh, where negotiators will brief them on the peace talks.

Abbas, U.S. Secretary of State Condoleezza Rice and Israeli Foreign Minister Tzipi Livni plan to attend.

Last week, a senior Bush administration official said the Israeli election meant a peace agreement was all but impossible this year. Israeli President Shimon Peres said several weeks ago that both sides were unlikely to conclude a deal in 2008.

Romania Petrochemicals Report Q3 2008

The future of the Romanian petrochemical sector has become uncertain following rumors about alleged threats to re-nationalise Petrom amid controversy over the level of tax the company is paying. The uncertainty has led to a downward revision in BMI’s petrochemicals business environment score to 51.9 points out of 100, 1.3 points down over the previous quarter. Nevertheless, in its latest Romania Petrochemicals Report, BMI states its belief that the country’s score will steadily improve with the expansion of petrochemicals production capacity and improvements to the overall regulatory environment, which should support a positive business environment. Petrom’s prospects have changed for the better with the advance in privatisation and the arrival of strategic investor/partner OMV. On its own, the company looked vulnerable. Backed by OMV, which could eventually merge its entire Romanian portfolio into Petrom, the future looks considerably brighter.

The company’s strategic objectives for 2010 involve a significant increase of investments of up to EUR1.5bn per year. It maintains that, as an integrated company, high oil prices have both positive as well as negative effects and will not affect its overall performance over the next three years. In terms of its refining business, Petrom is focused on increasing efficiency, expanding refining capacity of Petrobrazi to 6mn tpa from 4.5 mn tonnes per annum, improve product yield and significantly reduce own crude consumption. The modernisation of refining activities will be completed in 2011 and the full benefits are expected in 2012. In Q108, Petrom’s financial results were positive, indicating the positive effect privatisation has had on the company’s performance. EBIT was up 161% year-on-year (y-o-y) to RON1.03bn (US$450mn), net income was up 156% y-o-y to RON977mn (US$426mn) and turnover was up 35% y-o-y to RON3.72bn (US$1.62bn).

Investments almost tripled to RON2.05bn (US$895mn), confirming the commitment to Petrom’s long term developments. Despite Petrom’s success, since the centre-left lost power in 2004, the Romanian government has been critical of Petrom, accusing it of refusing contract modifications, particularly the level of taxes paid by Petrom on the use of the country’s oil reserves. At present, Petrom pays 6% tax on oil and gas exploitation, which is half the EU average. There were allegations that the government has threatened to re-nationalise the company and suggestions that Petrom could reduce the fuel price by 5-10% without recording losses. It has suggested that Petrom’s contract could breach EU legislation as the low level of tax compared to the EU average could count as state aid. The threat to review Petrom’s privatisation comes amid soaring energy costs, which have impacted badly on the Romanian poor, many of whom are now unable to afford winter heating. Yet, even the threat of re-nationalisation could reverse some of the positive gains seen since privatisation and risks hampering the company’s long-term investment programme.

Source: www.companiesandmarkets.com

Is Romania to open doors to Gazprom pipeline?

Romania is open to investing in the Gazprom pipeline South Stream, not just the EU Nabucco project, designed to reduce energy dependency on Russia, Romanian minister of economy Varujan Vosganian (Liberal) said last Thursday, EU Observer informed.

A Gazprom delegation is expected in Bucharest this week, just a month ahead of general elections.

"Romania is ready to support any EU project, both Nabucco and South Stream," the Liberal minister, whose party is at odds with the country's conservative President Traian Basescu, said, newswires report.

Recently, Mr Basescu renewed his calls on the European Commission and EU member states to "accelerate Nabucco," in order to decrease the EU's energy dependency on Russia.

Earlier this month, director of Gazprom Alexey Miller has conducted a series of talks in Moscow with the leaders of the Romanian companies “Transgas” and “Romgas” for supply of gas to Romania till 2030 -- Russian business daily Kommersant reported on October 20.

According to the edition the possibilities for attracting Romania in the “South stream” project as well as the possibility the country to substitute Bulgaria have been discussed.

A source from the Russian ministry of energy confirmed to “Komersant” that the possibility Bulgaria to be substituted by Romania in the project was being explored (in this case the route is shortened with 100 km), but refused to give details.

Initially Romania was seen as an alternative to Serbia. However, in the last half year all legislative hurdles in the relations between Serbia and Romania within the “South stream” project were cleared up.

The arrangements for the gas pipeline with Sofia, Budapest and Belgrade were reached in 2007. However, the Bulgarian authorities insist on the part of the pipeline which crosses Bulgarian territory to be property of the state, while “Gazprom” wants it to be Russian. Similar problems emerged in Serbia and Hungary.

Apparently the main problem for the realization of the “South stream” project is not the impossibility for negotiations with the East European countries but the general mistrust of the European Union towards Russia and “Gazprom”.

On the EU summit on 1 September this year the European leaders unanimously decided to distinguish the sources of energy supply. At first they will concentrate all their efforts in the implementation of the “Nabucco” project, which is a direct rival of “South stream” and should supply gas to Europe from the Caspian region by eliminating Russia.

The Romanian company “Transgas” and the Bulgarian “Bulgargas” are shareholders in the “Nabucco” project. This is why the aim of the talks with Romania is to persuade Sofia or Bucharest to participate in “South stream” and not “Nabucco”.

Gazprom is now negotiating a new long-term deal for gas supplies to Romania and chief executive Alexey Miller met Romanian ambassador in Moscow Constantin Grigorie, as well as the heads of two Romanian state-owned gas companies, the previous week, the daily said.

The meeting was focused on prospects for developing and creating new transit capacities, as well as co-operation for storage of gas underground,Kommersant quoted Gazprom as saying. Talks will continue in the near future with Vlad Rusakov, the head of Gazprom's strategic development department, scheduled to visit Bucharest.

If they go well, Gazprom could redirect South Stream to pass through Romania, a source familiar with the talks told Kommersant. Another source in Russia's Energy Ministry has confirmed for the newspaper that the prospect of replacing Bulgaria with its northern neighbour was being discussed, but declined to give more details.

Gazprom is likely trying to persuade gas operators Bulgargaz in Bulgaria and Transgaz in Romania to ditch their stakes in Nabucco, the European Union-backed gas pipeline that would link gas fields in the Caspian Sea to Central Europe, passing through Turkey and the Balkans. Nabucco is seen as a direct competitor for South Stream and the EU has recently stepped up efforts to build the pipeline to diminish its dependency on Russian supplies.

Redirecting South Stream to Romania would also cut down the costs of construction, since it would shave off about 100km of the underwater section of the pipeline, saving up to 12 per cent of the estimated $10 billion needed to build it, according to the head of East European Gas Analysis consultancy, Mihail Korchemkin, quoted by the newspaper.

Earlier in October, Russian business daily Vedomosti reported, quoting a strategy paper outlining the development of the gas industry in Russia, that South Stream faced a delay of two years and would become operational in 2015. By 2024, it would reach its full capacity and pump 31 billion cu m of gas annually.

which owns the project together with Italy's Eni, plans to finish the business plans for each individual country that the pipeline will pass through in the third quarter of 2009, the newspaper said.

Russia has already secured agreements with Bulgaria, Serbia and Hungary for the transit of South Stream.

Romania's Foreign Debt Cut to Junk by S&P Amid Financing Woes

Romania's foreign-currency debt rating was lowered to junk by Standard & Poor's, Bloomberg reported today.

The rating was cut to BB+, one step below investment grade, from BBB-, with a ``negative'' outlook, S&P said in a statement from London today.

“The downgrade reflects the mounting risks to Romania's real economy due to high and rising private-sector leverage and the related dependency on an increasingly uncertain external financing channel,” the ratings company said in the statement.

Just weeks ago, Romanian Parliament passed a bill stipulating a 50 percent income increase for the employees in the public education system. Last Monday, the Romania’s Central Bank (BNR) governor said that BNR successfully deflected an attack against the country’s currency (‘leu’) -- attack allegedly performed by international speculators.

Economists have said repeatedly that Romania is risking major economic problems if the trade deficit will not back down, as the country will become vulnerable to any liquidity shortage on international markets.

Romania Report

IMF improves estimates about Romania’s economic growth on 2008

The International Monetary Fund (IMF) estimates that Romania will report in 2008 a real growth of the Gross Domestic Product (GDP) of 8.6% after a 6-percent growth in 2007, reads the latest report pertaining to the outlooks of the world’s economy, published on October 8 in Washington.

The new estimates included in „World Economic Outlook” shows that the Fund significantly improved the estimates referring to the economic growth pace registered in Romania this year, considering in April the Fund staked on an economic growth of only 5.4%.
The fund warns, however, that next year Romania’s real economic growth will slow down to 4.8%.

As regards the inflation at the end of the year, the International Monetary Fund stakes as regards Romania a rate of 7.9% in December 2008.
Allowing for the average inflation rate, the International Monetary Fund forecasts an average inflation rate for Romania worth 8.2% in 2008.
The current account deficit will draw near this year to the level of 13.8% of the GDP, down compared to 14% of the GDP in 2007. In the outlooks made public this spring, the International Monetary fund anticipated a current account deficit of 14.5% of the gross domestic product in 2008.

In June 2008, the regional representative of the International Monetary Fund for Romania and Bulgaria, Juan Jose Fernandez Ansola announced that the International Monetary Fund would positively revise Romania’s economic growth, which will be significantly higher over the previous year.