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UPDATE 1 - Romania's Q2 GDP growth speeds to 6% y/y on strong agriculture, consumption - provisional data

UPDATE 1 - Romania's Q2 GDP growth speeds to 6% y/y on strong agriculture, consumption - provisional data Albanian finance ministry/All rights reserved.

BUCHAREST (Romania), September 6 (SeeNews) - Romania's annual economic growth accelerated to 6.0% in the second quarter of 2016 from 4.3% the quarter before, due to a strong performance of the agricultural sector and rising consumption, data from the country's statistics board, INS, showed on Tuesday, confirming earlier flash data.

In the March-June period Romania's economy reached its highest growth rate since the third quarter of 2008.

On a seasonally adjusted quarterly comparison basis, Romania's gross domestic product (GDP) rose by 1.5% in the second quarter, at the same rate as in the preceding three months, INS said in a provisional estimate.

In the first half of the year, the country's GDP rose by an annual 5.2%.

The figures are in line with a flash estimate released last month.

The agricultural sector jumped 17.9% year on year in the second quarter, and by 4.8% on the quarter.

Final household consumption rose 9.6% on the year and by 3% on the quarter, while gross fixed capital formation jumped 10.6% on the year and by 6.5% on the quarter.

The industrial sector grew by 2.6% on the year and by 0.1% on the quarter.

Construction was up by 6.9% on the year in the second quarter of 2016 and by 1.9% on the quarter.

Imports of goods and services was up by 11% on the year and by 4.5% on the quarter, while exports grew 3.5% on the year and 1% on the quarter.

Romania's national output expanded by a real 3.8% in 2015, speeding from a revised 3.0% in 2014.

Commenting on the results, UniCredit Bank Research analysts noted that the statistics data confirms their assessment that agricultural output would be robust in 2016.

"Water conditions for summer crops were favourable in the western areas which benefited from near-normal thermal conditions and plentiful precipitation. In the eastern regions drier and warmer-than-usual weather prevailed, which lead to decrease below average for soil moisture. Overall, it appears that agricultural output will be particularly strong for technical crops such as rapeseed," UniCredit Bank analysts said in a flash economic analysis.

IT also made another strong showing in the quarterly GDP data, the analysts noted. "We believe there is still considerable potential for the sector. The availability of a well trained, English-speaking  workforce has proved to be a major draw for investors, while the outreach for Romanian IT solutions has grown considerably over the past years."

A major challenge for the IT sector appears to be the fact that current demand is exceeding the supply of workforce, they commented.

However, the meek dynamic for industrial production and exports reflects the challenges that Romania will face in the future, according to the UniCredit analysts.

"Considering the fragile economic recovery in the eurozone and the accumulation of geopolitical risks, Romania is lacking the pull factors for an acceleration of manufacturing activity during 2017. Consequently, we expect economic growth to slow down in 2017 as transitory boost factors fade away and fiscal pressures become more binding," they concluded.

For their part, ING Bank analysts said that unsurprisingly, private consumption was confirmed as the major driver of Romania’s strong second quarter GDP growth.

"A minor positive surprise was that investments continued to be strong, albeit not even close to 2008 levels. All in all, unless investments, particularly in manufacturing, are stimulated, growth is likely to prove unsustainable over the medium term as consumption is running on “steroids” such as VAT cuts, minimum pay hikes and public sector wage increases. This increases the country’s vulnerabilities to potential external shocks over the medium term," ING Bank analysts said in a daily snapshot.

However, for now, they see no signs of imminent economic overheating, although brisk real wage growth relative to historical dynamics raises some alarm bells, with other areas  - like consumption and external balances -  warranting closer monitoring.

"Risks to our fiscal year GDP forecast of 4.2% are certainly to the upside, especially after robust second quarter figures, as domestic consumption remains buoyant and industry seems so far to be immune from Brexit. (...) However, the consumption driven growth that pressures the external balance increases the country’s vulnerabilities to potential external shocks over the medium term," ING analysts concluded.

Banca Transilvania analysts said that the advance is in line with its macroeconomic scenario and kept its forecast of Romania's GDP growth to 4.8% in 2016.

On the other hand, for 2017 and 2018, Banca Transilvania analysts forecast a drop in Romania's GDP growth, due to expected changes in economic policies.

Raiffeisen Bank analysts recalled that the GDP advance in the second quarter was much above their expectations of 4% year on year and analysts’ consensus of 4.1% year on year.

"Given the economic advance recorded in the first half of the year, of 5.2%, our GDP growth forecast for 2016 to 4.0% on the year seems pessimistic and we would revise it upwards in the upcoming period," they added," Raiffeisen Bank analysts said in a daily market report.

 

 

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