June 30 (SeeNews) - Italian banking group Intesa Sanpaolo said on Friday it has raised its 2017 economic growth estimate for Romania to 4.2% from 3.4% projected earlier.
The lender also raised its 2018 GDP growth forecast at 3.8% from a previous 3.4%.
"The Romanian economy continues to perform within market expectations, after the strong performance in the first quarter," Intesa Sanpaolo said in a June forecast note which considers the countries where it has subsidiaries.
Romania's annual economic growth accelerated to 5.7% in the first quarter from 4.8% the quarter before on the back of strong consumption, non-adjusted preliminary data of the country's statistical board, INS, showed.
April retail sales growth slowed to 6.1% on the year from 7.7% on the year in the previous month, as the fiscal stimulus is slowly fading away, analysts noted.
Regarding inflation, Intesa report showed that currently, the broadbased market consensus is that inflation is likely to rise over the course of the year, to reach the lower bound of the central bank target of 2.5% (±1 pp) by end 2018.
Romania's annual consumer price inflation remained at 0.6% in May, a 24-month high and the same rate as in April, INS data showed.
May inflation was slightly below market expectations and was driven mainly by strength in domestic demand, analysts said.
In its inflation report issued in May, Romania's central bank, BNR lowered its 2017 inflation forecast to 1.6% from previously projected 1.7%, adding that a downward revision of inflation projection could delay a hike of its key rate planned for 2018.
Regarding financial markets, Intesa analysts noted that recent price action in the Romanian financial markets indicated that the domestic agenda was the main focus.
"With intense domestic media coverage of the political situation, the nominal exchange rate of the leu lost in value vs the euro. However, the stability of domestic money market rates was noteworthy, as the abundant liquidity that was present in the market acted as a buffer for the local currency bond market as well," the report showed.
On Thursday, Romania's parliament gave its backing in a confidence to a coalition government led by Social Democrat Party (PSD) prime minister Mihai Tudose. Tudose's nomination came after last week the government led by Sorin Grindeanu lost a no-confidence vote requested by PSD. The party withdrew its support for the six-month old coalition cabinet citing poor performance.
Going forward, although the political agenda is still a focus, and likely to continue to occupy the Romanian mainstream media, an inflationary environment, both domestic and external, will probably be the fundamental price driver in 2018, analysts noted. This inflationary environment is likely to affect the leu foreign exchange market pushing the leu to decline in value, the domestic money market rates, and the local currency bond market, which is also likely to call for higher yields as inflationary pressures show up in the data prints.
In the banking sector, Intesa increased its 2017 loan growth forecast from 2.58% to 3.5% and kept the forecast for 2018 at 3.8%.
Also, analysts point out is the NPL rate at 9.36% at the end of March 2017, the lowest level since 2010, which continues to trend lower on the back of a more proactive approach and lower financing costs
Intesa Sanpaolo Group is present in Romania since 2008, through Intesa Sanpaolo Romania Bank.
On Tuesday, Intesa Sanpaolo group said it acquired certain assets and liabilities of bankrupt Italian bank Veneto Banca, including its assets in four countries in Southeastern Europe - Albania, Croatia, Moldova and Romania.
(1 euro=4.5503 euro)