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BNR's Report: Export may companies help the Romanian economy
Exporting companies are important for the real economy and the banking sector, but the health of these companies that are exposed to foreign economies must be looked after in case of economic deterioration.
Economic activity by Romanian companies carrying out foreign commercial transactions with goods has grown in the last year, despite an international macroeconomic framework marked by commercial tensions. The sectors that contributed the most to the favourable evolution of foreign trade were manufacturing (82 percent of exports and 54 percent of imports) and trade (10.6 percent of exports and 38.5 percent of imports), according to the National Bank of Romania (BNR)’s latest Financial Stability Report.
The main players of the manufacturing industry that are involved in foreign trade, such as the automotive sector, are dependent upon the development of transport infrastructure and the provision of specialised workforce, which highlights the importance of creating a proper environment for business development. The software industry is another important sector in foreign trade, and this area’s focus on the human factor and lower dependence on infrastructure may indicate a significant potential. Based on the incorporated technological level, between September 2018 and June 2019, medium-high-tech products accounted for 49 percent of exports while high-tech products represented 6.6 percent, based on BNR figures.
Romania’s external balance is dependent on a small number of companies, which together hold a share of less than 1 percent in the total number of companies in the country. In mid-2019, there were 2,700 net exporting companies operating in the economy, while the number of net importing companies was 5,100.
According to a BNR Survey on access to finance for non-financial companies in Romania, businesses involved in foreign trade reported decreases in their profit margins and, to a greater extent than the average of respondents, indicated that they felt labour costs, credit costs and other costs were increasing.
The results also indicated that importing companies considered competition to be a pressing problem to a greater extent than export companies did.
An important source of the trade deficit is the trade of agri-food products. The situation is based on the (largely structural) difficulties that agriculture and the local food industry face in covering the visible consumption gap of recent years.
Banca Transilvania (BT) estimates that between 2020 and 2022 there will be a mitigation of the gap between Romanian imports and exports as a result of internal economic policies and a depreciation of the leu.
“In BT’s central macroeconomic scenario, we expect to mitigate the gap between the annual paces of exports and total imports (of goods and services) between 2020-2022 due to the rebalancing of internal economic policy (in particular through fiscal-budgetary consolidation) and the depreciation of the real effective rate of the national currency. Total exports and imports could increase at average annual rates of 5.5, respectively 6.9 percent between 2020-2022,” says Andrei Radulescu, BT’s chief economist.
According to Romanian export associations, 2019 was the worst year of the post-crisis period for Romanian exports, having marked the first time when the export growth rate was lower than the GDP’s. The trade deficit reached about EUR 17 billion in 2019, according to estimates.
Erste cuts forecast for Romania’s growth this year on Covid-19 effects
Romania’s economic growth will be significantly hurt by the spread of the coronavirus in Europe and the slowdown of the major EU economies, according to a forecast of the Austrian banking group Erste.
The group’s analysts have reduced the GDP growth estimate for 2020 from 3.5% to 3%, expecting Romania to be hit harder than the Czech Republic, Hungary, and Poland.
“As a result of the rapid spread of Covid-19 in Europe, we revised downwards by about 0.3 percentage points (pp), to 2.6%, the estimated growth rate for Central and Eastern Europe (CEE), the negative revisions ranging from 0.3pp for the Czech Republic, Hungary, and Poland to 0.5pp in the case of Romania and Croatia," Erste analysts warn.
The revision is provisional, assuming a transitory short-term impact of the virus in Europe. A longer-term crisis would hurt more severely the growth rates in the region.
However, the final economic cost "will depend to a large extent on how quickly the countries manage to limit the spread of the virus and reduce the fear factor. If the spread is not limited in the near future, we could see the further decrease of the economic activity on a global level, which could translate into even slower growth of the ECE,” according to Erste.
An increase of only 3% (under the short-term impact scenario) would be the lowest annual GDP advance for Romania since 2012 when the economy started to recover from the recession caused by the crisis of 2008-2010.