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BCR analysts: Donald Trump’s victory will have minor economic impact on Romania
Even if the leu will have big fluctuations these days, BCR analysts expect the local market to calm down later on, as Romania was not the beneficiary of significant capital flow in US dollars in the past, a bank press release shows.
Consequently, eventual speculative capital withdrawals from Romania, due to Donald Trump’s victory in the race for the White House will be lower than those in other emerging countries, says Florin Eugen Sinca, BCR chief analyst in a press release. “Our estimates about the euro/leu exchange rate at the end of 2016 is 4.51, the same for several months. In fact, the share of debt expressed in US dollars in overall government debt is 9% in Romania, below the debt in euro which holds 40% of total.”
Romania will be very little affected commercially because exchanges with the US are reduced. “In the first seven months of the year Romania exported goods of about 600 million euros in the US, less than 2% of total Romanian exports, especially transport machines and equipment. Romanian service exports are concentrated in dynamic areas such as IT services, where Romania has high competitiveness, where we do not expect a negative impact.”
“Locally we do not expect a reaction from BNR following US elections and we expect the first interest rate increase at the beginning of 2018. A certain strengthening of monetary policy may come before that from the narrowing of the interest rate corridor for credit facilities and the deposit facility in 2017, which may bring interest rates higher in the market towards monetary policy interest rate,” Florin Eurgen Sinca added.
Donald Trump’s victory may bring, on a short term, the depreciation of some emerging currencies in countries exposed to capital flows in dollars, in Latin America or Asia. In case there is an intensification of protectionist policies in the US in the commercial field or labour force circulation, it could affect countries with high commercial excess with the US or countries close from the geographic point of view, the BCR analyst comments.
The probability of interest rate increase by FED in December is lower at present, due to the volatility of financial markets. It is a situation similar with the beginning of 2016 when FED postponed an interest rate increase due to turbulences in China. Certain central banks in emerging countries may increase interests to stop depreciation of national currencies.
Last but not least, we could make a parallel with the British vote for Brexit in June. The impact on the Euro Zone and Great Britain was bellow expectations, economic activity resisted well despite volatility of financial markets. While at that moment there were aggressive drops of economic growth estimates for Great Britain and the Euro Zone, these estimates were reviewed later on according to summer data .