Romania's central bank governor Mugur Isarescu said on Thursday he hoped the economy would show some growth this year, even after a deep contraction in the first quarter. Like many of its neighbours, Romania slid into recession this year as global financial turmoil struck manufacturing and thinned down consumption, but economists said the full impact of economic troubles has yet to hit many Romanians.
The unemployment rate has risen to more than 5 percent from less than 4 percent last year and government officials expect it to rise further to some 7 percent by the end of the year. However, Isarescu said with foreign capital increasingly available again in Romania - the country secured a 20 billion euro aid package through the International Monetary Fund in March - economic prospects could be improving.
"My hope is that there will be an improvement in the economy, not a fast one, and towards the end of the year, when we calculate the whole of 2009 versus 2008 the figure will be positive (growth)," Isarescu said at a financial seminar. He added that the central bank's baseline scenario still envisaged a full-year contraction of 4 percent.
While Isarescu has persistently painted an optimistic picture of Romania's crisis-stricken economy this year, many analysts are revising their forecasts after data showed the economy shrank by 6.4 percent on the year in the first quarter. "But he risks losing credibility if it doesn't happen."
Earlier, an adviser to Isarescu said the European Union state's sharp economic contraction will continue in the second quarter, before moderating slightly later this year, as the impact of the financial crisis on domestic demand deepens. "(Economic contraction) will be significant once more (in Q2) and then improve towards the end of the year," Lucian Croitoru told reporters. "Romanians are only just beginning to understand there is a recession and ... cut spending."
Croitoru reiterated expectations of a 4 percent contraction in all of 2009. However, some analysts say any gradual improvement in the economy may occur later than Croitoru suggested, largely because poor weather conditions, including a drought, may slash farming output and increase economic pain later this year. "We see things worsening in Q2 and Q3 and an improvement only in Q4," Chidesciuc said.
"But there is the risk of a weak agricultural year. If this materialises, the negative impact will be substantial and it is possible that the GDP will continue to drop. We are not ruling out a contraction of 10 percent (year-on-year) in Q2 or Q3."
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