Romania will benefit of a third two-year assistance package from the IMF and the EU, the two institutions announced officially on July 31. The Fund’s Board will discuss the SBA with Romania most likely in October. The Fund’s stand-by arrangement will have a EUR 2bn loan attached, while the EU’s BoP assistance programme will also offer a EUR 2bn financing option. As it happened in the previous agreements in 2011-2013, the country will treat the loans as precautionary.

Romania’s GDP rises 1.7% year on year in H1, more than expected, under the flash estimate. Romania’s GDP increased by 0.3% q/q in the second quarter of 2013 [seasonally adjusted data] after a robust 0.6% quarter on quarter advance in the previous quarter, the country’s statistics office reported under the first flash estimate. In annual terms, the second-quarter GDP advanced by 1.3%, decelerating from the 2.2% growth in Q1. The first estimate thus beats recent expectations expressed by bank analysts that put the quarterly advance at around 0.1-0.2%.

Robust GDP growth in Q2 was driven by industrial expansion stimulated by external demand. Domestic demand for investments and consumption remains subdued. Romania’s industrial production index increased by 7.3% year on year in Q2, according to calculations based on statistics office data. The industrial growth thus accelerated from 4.7% year on year in Q1.

In the core manufacturing sector, the annual growth rate accelerated even stronger - to 8.9% year on year in Q2 from 5.6% year on year in Q1. Romania’s exports increased by 7.2% year on year to EUR 12.13bn in Q2, according to calculations based on statistics office data. In Q1 exports were 4.6% up on the year, therefore the combined growth rate for H1 was 5.9% year on year. Although still far from the above-20% annual growth rates seen in 2010-2011, the exports’ performance this year is particularly encouraging.

Rising external demand and sluggish domestic demand helped country’s external balances. Romania’s January to June current account balance turned to a surplus of EUR 695mn, or 0.5% of the projected full-year GDP, from a deficit of EUR 2.8bn a year earlier, the country’s central bank reported. The shift was mainly driven by the steep 58% narrowing of the deficit in the country’s trade with goods – but strong contributions were made by i. rising exports of transport services and ii. lower outflows of incomes due to lower profits of FDI companies but also lower interest paid on public and private external debt.

Constructors’ activity lags behind industry’s expansion though. Romania’s construction works volume index shrank by 8.3% year on year in Q2 after a 4.4% year on year contraction in Q1, the statistics office reported. For H1, the average contraction rate was 6.2% year on year.

Retail sales have also remained sluggish in Q2. Romania’s retail sales volume index shrank 1.9% year on year in Q2, the statistics office reported. Earlier in Q1, the retail sales edged down 0.1% year on year.

Other two major concerns are the below-target budget revenues and the slown rise in the workplace count. H1 revenues were below target in spite of the better-than-expected GDP growth. The mid-year budget adjustment is unrealistic, the Fiscal Council concluded. Nonetheless, the government rejected for the forst time Council’s remarks as inappropriate.