Romania’s current account (CA) has increased nearly 2.6 times to EUR 2.55 bln in the first quarter of the year (Q1), compared to the same period of last year. Although it is still premature, the figures were received as negative for the full-year forecast.

The state forecasting body CNSP hopes for the CA gap to slightly shrink this year to 4.8% of GDP from 5.2% of GDP last year.

“Based on Q1 data, the current account deficit in 2021 would very likely outpace our forecast of 5.2% of GDP,” Raiffeisen Bank analysts said in a research note based on the trade figures alone.

The full CA data must have added a more negative sentiment, although the CA gap is seasonally moderate in the first quarter of the year, and the figures below expectations in this period can easily be offset later in the year.

Under its latest country review, rating agency Fitch forecast “a modest widening” of the CA deficit in 2021-22 (averaging 5.7% of GDP, from 5.2% in 2020) as a recovery in exports is offset by stronger import demand.

But the wider external deficit - the government sees the CA deficit below 5% of GDP in the medium-term and S&P forecast the deficit to average 5% in 2021-2024 - would be driven by particularly strong GDP growth under Fitch’s scenario: 5.8% per year in 2021-2022.

This is 1.3pp more than the government’s forecast and in line with the more optimistic independent projections. The net import of goods (the trade deficit) expanded by nearly 20% to EUR 5.4 bln in Q1 - and this is visibly the main weakness of Romania’s external balance. In absolute terms, the increase (EUR 891 mln) accounted for the biggest part (57%) of the EUR 1.56 bln yearly advance (deterioration) of the CA gap.

But the balance of all the current account’s elements - except for the transport and tourism - has deteriorated as well.

Specifically, the outflows of primary and secondary incomes increased by 33% YoY and 22% YoY while the inflows of the same two elements remained roughly unchanged from last year.

The outflows of dividends and interest to foreign investors (direct and financial) were somehow expected under the primary income balance.

But the secondary income balance performed against expectations in a negative way: the inflows (including the transfers from the EU budget) remained modest while the outflows expanded significantly (with no obvious cause).

The pattern is expected to reverse later, possibly as soon as this year, as the advance transfers from the European Budget (under primary incomes balance) under the Relaunch and Resilience Plan and new Multiannual Financial Framework are operated. 

(Photo: Diony Teixeira/ Dreamstime)

iulian@romania-insider.com