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Romanian 2007 GDP growth to slow to 6.5%

Romania's economic growth will slow this year because of declining retail and industrial growth, said Ion Ghizdeanu, the nation's chief economic forecaster.

GDP will expand about 6.5% this year from about 8% last year, said Ghizdeanu, president of the National Forecasting Commission, in a telephone interview today in Bucharest. „The main elements slowing the pace of growth are linked to industrial output and retail sector growth, which were very strong in 2006,” Ghizdeanu said. „The growth still reflects the potency of the economy. Last year the growth was coming off only 4.3% growth in 2005.” Higher wages, a lending boom, the slowest inflation rates in 17 years and an influx of foreign investment before Romania joined the European Union on January 1 helped fuel economic growth last year. Ghizdeanu said the impact of those factors will diminish although the economy will still grow well above the EU average. The annual inflation rate will fall at the end of this year to 4.3% from 4.9% last year, Ghizdeanu said, less of a drop than the 2006 decline from 8.4%. He also forecast that foreign investment will drop to €7.6 billion ($10 billion) this year from €9.1 billion last year and cover a maximum of 70% of the current-account deficit, from 91% last year, as state-asset sales slow.

Romania's government received €2.2 billion last year from the sale of its stake in lender Banca Comerciala Romana SA alone. Sales slated for this year are smaller, including state-run drugmaker Antibiotice SA and Daewoo Motor Co.'s former auto plant in Romania, now owned by the government. Industrial output growth, Ghizdeanu said, will probably slow this year to 4.7% from 7.1% last year. He gave no specific estimate for growth in the retail sector, which posted an increase of 20% last year. Ghizdeanu predicted the current-account deficit this year will widen to almost €12 billion from €9.97 billion in 2006 as the trade deficit, widened by the increasing strength of the local currency, the leu, will rise to €17.9 billion from €14.9 billion. The forecasting commission also predicted an average exchange rate this year of 3.4 lei to the euro, compared with 3.524 last year. A stronger local currency makes imports cheaper for Romanians and exports more expensive for foreign buyers. The average pretax wage, he predicted, will increase 12% this year from 22% last year. The central bank has said wage growth is the main risk to maintaining inflation targets this year. (Bloomberg)