Garanti Bank Romania forecasts for 2014: Lower economic growth, inflation at a historical minimum and recovery of the construction sector

In 2014, a GDP growth of 2% is expected, lower than the 2,4% registered in 2013. The GDP growth rate is expected to decelerate in the following year mainly due to a lower production in agriculture and the deceleration of industrial production growth, on the back of softening exports’ dynamics. This is the main forecast for 2014 in GarantiBank’s latest Quarterly Macroeconomic Report. GarantiBank is one of the most innovative and dynamic banks on the local market and owned by Turkiye Garanti Bankasi A.S. (TGB), among world’s top 20 strongest financial organizations according to Bloomberg, said the bank in a press release.

In regards to the inflation, it is expected to reach a historical minimum of around 1% in the first half of 2014, but to increase in the second part of the year towards 3.5%. The major inflationary impact for 2014 is expected to come from the energy price liberalisation (around 10% increase), the gas price liberalisation (approx. 8% increase) and the announced excise duty indexation by 4.77% as of January 2014 and additional excise duty hike on fuels (around 5.5% increase in final price of fuels with 0.5 percentage points contribution to inflation).

GarantiBank’s specialists estimate that the NBR will continue the softening of the monetary policy with two more key rate cut down to 3.5%, as early as the first trimester 2014.

“The lower inflation will give a boost to the purchasing power, and the financing in local currency will become more attractive, respectively cheaper. These factors, alongside the growth of real wages, will have a positive contribution to the internal consumption and the domestic demand in 2014”, stated Rozalia Pal, Chief Economist at GarantiBank.

Furthermore, the recovery of both private and public investments is expected in 2014. Support should come from the reaccelerated EU funds absorption and the resumption of infrastructure projects.

 “Alongside the economic recovery, we expect unemployment rate to improve gradually, to a 7% annual average. The impulse for higher employment rate could also come from the industrial segment especially, since 2013 was a very good year, and our forecast is that in 2014 the production should stay at this higher level”, added Pal.

Another positive sign in the market is the recovery of the construction segment, with a performance below expectations in 2013 and a recovery with 3.3% yoy growth is expected in 2014. The sector also benefits from the EU infrastructure projects that have been unblocked at the end of June.

The private sector could also benefit from an important change in legislation, represented by the Government’s proposal to cut the mandatory social payments (CAS) by 5 percentage point. This could increase the competitiveness of the local companies and it might represent an important incentive for the re-launch of foreign investments.

According to the quoted Macroeconomic Report, GarantiBank also estimates the EUR/RON to stabilize at around 4.45 towards the end of 2013 and slightly depreciate towards 4.55 in 2014, mainly due to the volatility of portfolio investments driven by international events.

See the report here, in Fisiere file