Executive Summary.. 5
Core Views ..5
Major Forecast Changes ....5
Key Risks To Outlook ....5
Chapter 1: Political Outlook. 7
SWOT Analysis... 7
BMI Political Risk Ratings .... 7
Domestic Politics... 8
Political Stability Prior To Election....8
The Romanian coalition government will withstand increased opposition pressure until the parliamentary election in November 2012. We
still expect the opposition to win the upcoming election and believe a new coalition government will respect the terms of the countrys
precautionary fund agreement with the EU /IMF. High levels of corruption will be key on the policy agenda, and the countrys external
perceptions will depend on improvements in this area.
TABLE: Political Overview.. 8
Long-Term Political Outlook... 10
EU Membership Underpins Long-Term Stability....10
The strength and quality of Romanias political institutions falls short relative to much of Europe, with significant challenges ahead
despite the progress made in the two decades since the fall of communism. However, we believe that Romanias membership of the EU
will spur gradual political development over the years ahead and is very supportive of long-term political stability.
Chapter 2: Economic Outlook.... 13
SWOT Analysis..... 13
BMI Economic Risk Ratings.... 13
Economic Activity.... 14
Modest Slowdown Ahead.....14
We forecast Romanian real GDP growth of 2.1% in 2011 but have modestly revised down our 2012 forecast to 2.5%, from 3.3%
previously. Underpinning this revision is a deteriorating outlook for Romanian exports on the back of recession in the eurozone.
Domestic demand, however, should remain supportive of economic expansion over the quarters ahead.
TABLE: ECONOMIC ACTIVITY.. 14
Balance Of Payments.. 15
Financing Difficulties Likely To Need Assistance.15
While we forecast Romanias current account deficit to reach 3.9% of GDP in 2011 and widen to 4.2% of GDP in 2012 as external
demand for the economys exports cools, we see growing risks from the countrys inability to finance the deficit. With global risk aversion
elevated as a result of the eurozone sovereign debt crisis, a narrowing capital and financial account surplus suggests a return to the EU -
IMF assistance programme is now increasingly likely.
TABLE: CURRENT ACCOUNT .. 15
Fiscal Policy..... 17
Return To IMF Increasingly Likely...17
We forecast Romanias budget deficit to fall below 3% of GDP by 2013 on the back of impressive fiscal austerity measures in recent
years, although slightly off the governments goal to achieve this target in 2012. However, we see increasing financing difficulties on the
horizon, as heightened investor risk aversion and a rapidly deteriorating economic environment will keep buyers of Romanian sovereign
debt wary, increasing the likelihood of a return to the IMF for further assistance.
TABLE: FISCAL POLICY.... 17
Monetary Policy.... 19
Further Rate Cuts Ahead..19
The National Bank of Romanias decision to cut its key policy rate by 25 basis points, to 6.00%, on November 2 2011 is in line with
our view that moderating inflation would trigger monetary easing. However, the sooner-than-expected cut signals a front-loaded, more
aggressive cutting cycle. We have therefore revised down our 2012 reference rate forecast to 5.50%, from 5.75%.
TABLE: MONETARY POLICY... 19
Regional Banking Sector .... 20
CEE Risks Rising..20
Higher capital adequacy ratio requirements and sovereign mandates for banks to retrench in Western Europe are likely to feed through
to weaker funding to the Central and Eastern Europe (CEE ) region. We caution that there is a high risk of a credit crunch in CEE .
Chapter 3: 10-Year Forecast.. 23
The Romanian Economy To 2021... 23
Economic Outlook Still Bright Over Long Term.23
Despite taking a heavy blow in 2009 on the back of the global economic downturn, we believe that the outlook for the Romanian
economy remains fairly bright over the longer term. In particular, we cite the limited private sector debt burden, flexible exchange rate
and large consumer market as reasons underpinning our favourable assessment. We caution, however, that ongoing political fragility,
corruption, population decline and the eventual adoption of the euro could pose significant impediments to growth.
TABLE: LONG-TERM MACROECONOMIC FORECASTS .... 23
Chapter 4: Business Environment. 25
SWOT Analysis..... 25
BMI Business Environment Risk Ratings.. 25
Business Environment Outlook.. 26
Institutions ... 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS... 26
TABLE: BMI LEGAL FRAMEWORK RATING... 27
TABLE: LABOUR FORCE QUA LIT Y..... 28
Infrastructure ... 29
TABLE: EMERGING EUROPE – ANNUA L FDI INFLOWS.... 29
TABLE: TRADE AND INVESTMENT RATINGS..... 30
Market Orientation ... 31
TABLE: TOP EXPORT DESTINATIONS .... 31
Operational Risk .. 32
Chapter 5: Key Sectors... 33
Oil & Gas... 33
TABLE: Oil & Gas – Historical Data And Forecasts.. 36
Infrastructure.... 38
TABLE: Construction & Infrastructure Industry Data.. 39
Other Key Sectors.... 41
TABLE: Autos Sector Key Indicators... 41
TABLE: Food & Drink Sector Key Indicators..... 41
TABLE: Pharma Sector Key Indicators.... 42
TABLE: Telecoms Sector Key Indicators... 42
TABLE: Defence & Security Sector Key Indicators... 43
TABLE: Freight Key Indicators.... 43
Chapter 6: BMI Global Assumptions. 45
Global Outlook.. 45
Eurozone Break-Up Risks Rising ...45
TABLE: GLOBAL ASSUMPTIONS ..... 45
TABLE: DEVELOPE D STATES REAL GDP GROWTH FORECAST .... 46
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS .... 46
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST ... 47