Romania trade gap widens but weak leu softens blow

Market watchers say the impact from a steep downturn in the leu (RON), which in November hit its lowest level against the euro in two years, could have started to bear fruit. The National Statistics Board (INS) said December was the only month last year when exports’ growth rate outran that of imports. The deficit rose by 52% over January-November and by around 45% in 2006. Data showed the growth rate of imports slowed to 6.5% year-on-year in December from November’s 22.4%, while exports rose 15% against a 12.1% year-on-year rise recorded in November.

The gap, which was €21.5 billion ($31.3 billion) last year, fuels a ballooning external shortfall which is the country’s main economic headache and has deteriorated sharply since Romania joined the European Union a year ago, due to the removal of import taxes with fellow member states. “There is an acceleration of exports growth in December that may be the result of the depreciation of the leu,” said Ionut Dumitru, head of research at Raiffeisen Bank in Bucharest. CIF (cost/insurance/freight) imports rose 24.9% year-on-year to €50.9 billion in 2007, while exports were up 13.7% to €29.4 billion. “The overall annual figure is within expectations and worrisome ... the deficit rose greatly and it led to the ... widening of the current account deficit,” said Dumitru. Analysts said it was too early to predict whether exports have gathered enough steam so that in coming months they can outpace robust imports due to strong consumption. “Apparently, we have an impact from the leu fall on trade figures ... it’s too early to say this has become a trend,” said Catalina Constantinescu, ABN Amro analyst in Bucharest.

Others said a sudden drop in import growth would indicate a spillover from the weaker leu into residents’ willingness to import goods. “... Especially automobile imports, which made up 40% of total imports last year and obviously are leu-sensitive, having a large net effect on total import volume in the event of a sudden drop in total units imported," said Simon Quijano-Evans, analyst at UniCredit MIB in Vienna. Fitch Ratings, which cut its outlook on Romania to negative from stable last month, in part because of concerns over loose fiscal policies, sees the current account gap at 14% of GDP last year and 17.5% in 2008. At 10:20 GMT the leu traded at 3.6520/10 per euro against Friday’s close of 3.6733. (Reuters)