Coface Outlook for Romania: Good Growth Expected but Not as Robust as 2013
In its most recent Panorama economic publication, global credit insurer Coface focuses on Romania. The country’s economic performance made it one of the leaders in Europe’s recovery, with growth of 3.5% exceeding expectations in 2013. Significant contributions came from the agricultural and automotive sectors, in particular from auto production for export. Although growth will not keep pace in 2014, the outlook remains positive.
2013: A Year of Growth
Romania’s real GDP growth in 2013 exceeded expectations – up by 3.5% for the year, with a 5.1% rise in the last quarter. The main contributor to growth came from exports (+13.5%) and in particular exports of agricultural products and cars.
Romania is the most dependent country on agriculture in the European Union, with almost 31% of the working population employed in this sector. Harvests were excellent in the summer of 2013, leading to positive supply. In 2013, Romania’s output of agricultural goods amounted to 17 billion euros (+25%), accounting for nearly 5% of the EU-28’s agricultural output.
Alongside crop exports, auto production was also a significant contributor to Romania’s external trade. As Romania offers some of the lowest labor costs in the EU, the country has been favored by OEMs (Original Equipment Manufacturers) as a location for their factories – principally Ford, but also Renault which has brought new life to Romania’s Dacia brand.
“Romania recorded one of the highest GDP growth rates in Europe in 2013. The growth of 3.5% significantly exceeded the Eurozone recession and the CEE average of 1.2%. The main contributors to this positive performance were the good agricultural harvest and a high level of exports. However, neither of these can be considered as sustainable factors. The recovery of advanced economies will be beneficial to Romania’s external trade, especially its automotive sector, although the country’s internal situation continues to be a constraint,”explains Grzegorz Sielewicz, Coface Economist Central Europe.
- Transport: A Pillar of Romania’s Economy
The transport sector in Romania is an important pillar of the country’s economy. The volume of freight transport amounted to 108% of GDP in 2012 - above the EU average of 95% but lower than most of its regional peers. Bulgaria and Poland recorded the highest shares, with 174% and 137% respectively.
The transport sector offers positive prospects given the increased demand for these services - especially with the recovery of the Eurozone, Romania’s main trading partner. However the improved demand for transport services will not directly translate into an increase in net profits for all Romanian companies operating in this sector. The intense competition can result in prices being pushed down and the acceptance of lower margins amid stable fixed costs. Coface forecasts a medium risk level in the transport sector.
- Agriculture: Excellent Harvest in 2013
Romania benefited from greater increases in agricultural production than in other CEE countries. However, the positive contribution of agriculture cannot be viewed as a permanent factor in the country’s output, since it is highly affected by external factors such as weather.
One external factor that could benefit Romanian agriculture is the turmoil in Ukraine. The recent turbulence has created an opportunity for Romania to become a major player in the Black Sea basin grain market. Russia and Ukraine remain significant producers of grain in the region, producing four and three times more, respectively, than Romania. Their production is forecast to decrease this year, by 4% for Russia and by as much as 10% for Ukraine. With stable worldwide demand, Romania will be able to strengthen its production capacities and influence export prices.
Will 2014 Catch Up?
In 2014, Coface forecasts that Romania will be one of the two CEE economies (together with Latvia) where the pace of GDP growth will not improve. The forecast for 2014 is a real GDP growth rate of 2.5%. The anticipated rate of growth will bring the Romanian economy closer to the forecasted CEE average growth rate of 2.4%.
Expectations for agricultural output in 2014 are mixed, but the most realistic scenario seems to be that the harvest will be lower than in 2013. Exports will remain driven by the demand for new cars, a sector that makes a strong contribution to the performance of Romanian industry. Internal demand will also show signs of improvement, with household expenditure rising – although it will still be constrained by the sluggish growth in credit. The growth of fixed asset investments will not increase in line with private consumption, as companies are still not fully convinced that the economic recovery is sustainable.
”The economic performance of 2013 will not be continued at such robust levels, as last year’s growth contributors are not sustainable. This is already confirmed by the technical recession during the first two quarters of 2014. Nevertheless, a stable growth rate of 2.5% in 2014 will be supported by significant volumes of exports shipped to Eurozone countries and the gradual rebalancing of the country’s economy towards domestic demand,” concludes Grzegorz Sielewicz, Coface Economist Central Europe