This report covers the main Romanian macroeconomic releases of April 2014 [plus half of May – this particular report was issued later than typically due to the EBRD meeting and expected S&P sovereign update] as well as financial and political trends in the country during this period. The short-term indicators released during the period refer mainly to Q1 period of this year.

Romania issued on April 15 a EUR 1.25bn Eurobond at a yield of 3.7% and with a maturity of 10 years. The yield was eventually below the government’s expectations and places Romania among the countries with better country ratings, Voinea commented. In the meanwhile, S&P upgraded Romania’s sovereign.

Rating agency S&P said it has upgraded Romania’s credit rating by one notch to BBB- [long-term] and A-3 [short term], thus joining the other two large global agencies Moody’s and Fitch that also evaluate the country’s risk level at the lowest grade above the non-investment or speculative area. FORECAST: The rating agency sketched a forecast scenario that is slightly more optimistic than the one agreed by the government with the IMF or the one issued recently by the EC. Nonetheless, EC, EBRD and WB have all of them upgraded their forecasts for Romania’s 2014-15 growth.

Romania’s GDP edged up marginally by 0.1% quarter on quarter, seasonally-adjusted terms, but surged by 3.8% on the year – the country’s statistics office announced under the first flash estimate for the quarter’s performance. The 3.8% annual advance was down from 5.4% year on year in Q4 and 4.2% year on year in Q3. But the performance was however better than last year’s 3.5% average growth and this is particularly encouraging. Furthermore, this 3.8% year on year advance is only to a small extent subject to base effects – as it was the case with the 0.1% quarter on quarter advance dwarfed by massive crops reported in H2 last year.

Budget execution remains problematic but tax hikes effective after March are expected to improve the situation. Romania’s general government deficit narrowed by 77.8% year on year to RON 927.9mn (some EUR 200mn) in Q1. The fiscal gap is equivalent to 0.14% of the expected full-year GDP, down from 0.67% in Q1 last year. Nonetheless, the fiscal consolidation was achieved by higher excise taxes and massive cut in the public expenditures.

Key Points:
• IMF to review stand-by deal with Romania in June-July
• Leftist PSD consolidates leading position in polls for European elections
• Industrial output up 10.1% y/y in Q1 2014
• Construction works volume falls 9.4% year on year in Q1 2014
• Retail sales up 9.3% year on year in Q1 2014
• Headline CPI inflation edges up to 1.2% year on year in April 2014; c-bank cuts end-2014 inflation forecast by 0.2pps to 3.3%
• Wages up real 4.4% year on year in March, by 4% year on year in Q1
• EU funds absorption weakens again in April
• Q1 fiscal gap narrows 78% year on year to 0.14% of GDP
• Romania’s ESA public debt reaches 38.4% of GDP at end-2013; to remain below 40% by end-2017, under convergence report
• Central bank keeps monetary policy interest rate flat at 3.5%
• Bank loans down 2.7% year on year at end-March despite recovery in local currency lending; banks’ NPL ratio up 3.18pps year on year to 22.26% at end-March 2014
• C/A balance swings into EUR 261mn deficit in January-March; Q1 exports up 10.1% year on year.