The report covers info as of March 20.

Romania’s GDP increased by 2.9% in 2014, driven by the 4.6% y/y rise in domestic consumption that contributed 3.6pp to the overall performance. GDP will increase by 2.8% in 2015, slightly losing steam from the 2.9% expansion in 2014, but will gradually accelerate to 3% in 2016 and 3.5% in 2018, under the Winter Forecast released by state forecasting body CNP on February 23. Growth will be entirely driven by internal demand, particularly by the private consumption, the forecast says.

The drivers of Romania’s GDP growth have changed visibly in 2014 from 2013. Households’ consumption (private consumption) – and particularly households’ direct consumption, has replaced net exports (external demand) as the main driver, latest quarterly data from the statistics office reveals. The key question is whether the domestic demand – for consumption and investments, will keep supporting the growth in the coming years, as forecasted under the baseline scenarios of the state forecasting body CNP and of the main international partners (EC, IMF).We have investigated the causes that generated the shift in order to answer this question.

Local currency bank lending has strengthened since mid-2014, end-December data revealed, and monetary circumstances supported this trend through January and February. The central bank cut the monetary policy interest rate by 125bp to 2.5% at the end of January and by another 25bp in February.

Key Points
• Fitch affirms BBB-/stable rating for Romania: robust fundamentals but structural weaknesses
• Romania plans IPOs of Hidroelectrica, Constanta port and Bucharest airport this year – PM Ponta
• GDP up 2.9% y/y in 2014 driven by domestic consumption; GDP to grow by 2.8% in 2015; at least 3% p.a. in 2016-2018 – CNP forecast
• Investments up 3% y/y in Q4 after seven-quarter decline
• Romania’s industrial growth eases to 1.2% y/y in January
• Economy uses 11% y/y less electricity in January, exports soars 75% y/y
• Retail sales up 6.3% y/y in January
• Headline inflation remains at 0.4% y/y in February
• Net wages up real 6.6% y/y in January
• Government posts 0.56% of GDP surplus in January on lower expenditures and expects fiscal surplus of over 0.67% of GDP in Q1
• EU funds absorption rate remains disappointing in February
• Government is expected to enact the revised Fiscal Code on March 23.
• Public debt hits 40% of GDP at end-2014
• Banks cut bad loans by [no more than] one quarter in eight months to January
• Bank loans 3.8% down y/y at end-January, consumer loans 3% up m/m
• Romania posts 0.4% of GDP C/A surplus in January