This report covers the main Romanian macroeconomic releases of February 2014 (up to closing date March 10) as well as financial and political trends in the country during this period. The report also summarizes corporate news for firms including Volksbank AG and Raiffeisen Bank Romania.

The short-term macroeconomic indicators remain broadly positive and even encouraging for the year to come. But the political turmoil in February points to the very real risk of deterioration in structural reforms and public policies during the year until the presidential elections in November. The redefined political majority supports a cabinet that will probably keep on track the SBA arrangement with the IMF, as this agreement is seen as a cushion against external shocks. The cabinet will likely not, however, do any more than required by the Fund to shore up the reforms.

But the major risks come from political concentration after November’s presidential elections. Having gained full control over the executive, the leftist PSD is preparing to win the presidential elections also. The risk of rising pressures on the judiciary and a possible reversal of judicial reforms would be high if the PSD were to control both the presidency and executive after November’s elections. At this point, the PSD has avoided reversing the controversial bills endorsed last December that stirred vocal criticism from civil society and EU officials.

Romania’s GDP increased by 3.5% in full 2013 after expanding by 5.2% year on year in the fourth quarter alone, the statistics office announced under its first preliminary estimate. In particular, industry contributed 2.3 percentage points to the 3.5% GDP increase in 2013 and 3.5pps to the 5.2% year on year GDP growth in Q4. The value added generated by the sector expanded by 12.6% year on year in Q4 and by 8.1% in full 2013. Net exports have contributed greatly to 2013 growth.

Under its Winter Economic Forecast, the EC has upgraded its projections for Romania’s GDP growth to 2.3% this year and 2.5% in 2015, up by 0.2pps and 0.1pps, respectively, compared to the Autumn Forecast issued in November. The upgraded expectations for the 2014–2015 growth come on the top of a major adjustment in the estimate for the 2013 GDP base (3.5% growth instead of the previously estimated 2.2%). The Commission has reiterated its expectations for a stronger contribution from domestic demand. Investment is projected to regain momentum.

Key Points:

• In corporate news, Volksbank AG has hired Rothschild Bank to help arrange the sale of Romanian branch Volksbank Romania. And Raiffeisen Bank Romania is planning to issue RON 500mn [EUR 110mn] bond with a maturity of up to five years.

• Industrial production in Romania was up by 7.8% in 2013, resuming the robust growth after a temporary slowdown in 2012.

• Retail sales keep growing, up 5.9% year on year in January 2014 after an encouraging 3.6% year on year rise in Q4.

• Headline inflation eased to 1.06% year on year in January.

• The public debt hit 38.7% of GDP under ESA, up 2.6pps year on year at end October.

• Foreign banks have cut credit lines by over EUR 4bn since end-2012, and by EUR 800mn in January 2014 alone.