The report covers info as of August 27.

In the context of the debates on the fiscal and budgetary measures envisaged by the Romanian government for January 2016, Romania's central bank governor Mugur Isarescu argued in an interview with Revista 22 in favour of stimulating the supply and not the demand, as the government seems to be doing. Central bank’s vocal comments against excessive stimulation of consumption eventually convinced political parties to adjust the planned fiscal reforms – but the package of tax cuts remains skewed toward stimulating consumption rather investments.

GDP increased by 3.2% y/y in Q2, decelerating from 4.3% y/y in Q1, the country’s statistics office INS reported in its flash estimate on August 14. Seasonally adjusted GDP inched up by a mere 0.1% q/q in Q2, after the 1.4% q/q advance in Q1. It slightly exceeded the pre-crisis peak level.

Key Points
• Ruling coalition, opposition agrees over Fiscal Code including 4pp cut in VAT rate to 20%
• Central bank argues for stimulating supply, not demand
• Market regulator decides on bankruptcy for Astra insurer
• PM Ponta has no plans to resign before December 2016 elections
• Fitch affirms BBB- sovereign rating for Romania; revises upwards growth forecast
• GDP growth eases to 3.2% y/y in Q2, below expectations
• Romania’s industrial growth eases to 1.5% y/y in Q2
• Primary energy resources used in Romania up 3.2% y/y in H1
• Construction works up 8.6% y/y in Q2; residential segment loses momentum
• Retail sales up substantially by 6.1% y/y in Q2…
• … visibly driven by the 13.9% expansion of food sales after VAT rate cut in June
• Consumer prices down 1.7% y/y in July on lower foodstuff VAT rate
• Real wages up 7.3% y/y in Q2; 11% above pre-crisis level
• Political parties agree over Fiscal Code; endorse 4pp VAT rate cut, defer elimination of other taxes
• Government posts 0.6%-of-GDP surplus in H1…
• … and 0.46%-of-GDP surplus in July; 1.06%-of-GDP surplus in Jan-Jul
• Government raises wages of public healthcare system personnel by 25%
• EC commissioner warns Romania could lose EU funds due to low absorption rate
• BIS-reporting banks cut exposure to Romania by 2.9% of GDP in 12-months ending March
• Romanian banks post €270mn net profit in H1
• Stock of bank loans 0.7% down y/y at end-Jul
• Romania’s exports up 7.0% y/y in Q2