The report covers info as of May 20.

The good news come from the labour market and growth. The twin surplus – positive balances of the C/A and government budget, will be short-lived, but significant for the sustainable drivers of the economic expansion. Moderately good news come from the banking market, where the balance sheet cleaning has stopped in Q1 – with indeed positive impact on banks’ profitability. Nonetheless, the NPL share of the largest bank BCR remains close to one quarter (25%).

At the core of the discussions of the government with the IMF there is the revised Fiscal Code. Other important topics – such as the management in state owned companies and the restructuring of the mining and power companies CE Oltenia and CE Hunedoara are also high on the agenda.

The EC has illustrated in its Spring Forecast serious concerns related to the possible fiscal slippage generated by the revised Fiscal Code. The government has displayed budget surplus for Q1 and the revenues have increased by 12.6% on 21% y/y surge of VAT collection. However, the Fiscal Council explains that the rise of VAT collections was due to lower VAT returned to firms. The revised Fiscal Code is still under debates in Parliament and the lawmakers, encouraged by the government, are reportedly smoothing the tax rate cuts.

Key Points
• GDP up 4.3% y/y in Q1 - flash estimate
• EBRD revises up Romania’s 2015 growth projection to 3%
• Romania’s growth remains robust but fiscal reforms to push up deficit - EC Spring Forecast. EC asks Romania to take measures against expected fiscal slippage. Fiscal Council endorses VAT cut on food, but says is risky
• Imports up 11.6% y/y in March, exceed pre-crisis peak; exports up 4.9% y/y
• Industrial output rises 3.3% y/y in Q1
• Electricity consumption down 3.6% y/y in Q1, exports double
• Construction works up 13.4% y/y in Q1
• Retail sales growth moderates to 3% y/y in Q1 on weaker non-food sales
• Headline inflation eases to 0.65% y/y in April. Central bank revises downward inflation forecast to reflect VAT rate cut in June
• Net wages up real 6.3% y/y in Q1 in Romania, employment up 2.4% y/y;
• Government posts 0.7% of GDP surplus in Q1
• EU funds absorption rate up 1.1pp up to 54.22% at end-April
• Central bank cuts interest rate by 25bp to 1.75% in unexpected move
• Bad loans remain constant in Romania during Q1
• Overdue bank loans in Romania drop by 26% y/ at end-March
• Romania’s bank loans down 3.4% y/y at end-March. Deposit base of Romanian banks up 5.9% y/y at end-March
• Romania posts €406mn, 0.3% of GDP C/A surplus in Q1