In 2015, the internal demand will be boosted by the relaxation in the fiscal policy following a reduction in social contributions, a VAT reduction, from 24 to 9 percent for agro food products in June 2015, and a revaluation of pensions and public sector wages. The consumption will be stimulated by income from the private sectors, by households with low and medium income that benefit from assistance programs.
However, despite the better performance of consumer dependent sectors, the retail companies are among the most affected by insolvencies in 2015. Their share in total bankruptcies is equal to 23 percent. This percentage results from the high number of retail entities within the overall structure of Romanian companies. The business sector, as well as the retail industry, is still suffering from long receivable collection terms, up to 90 days.
The top five sectors affected by insolvencies in Romania were constructions; manufacture of textiles; clothing and footwear, sewage and garbage removal, sanitation and similar activities; hotels and restaurants (HORECA); food and drinks. At the other end, best performing sectors were health and social care; IT; other personal service activities; other services rendered to enterprises and financial intermediation.
Insolvencies in Romania fell by 27.9 percent in 2014, compared to 2013. However, the insolvency rate in Romania, at 4.5 percent, remains the largest in the CEE Region. The insolvency in CEE Region it is estimated at 1.1 percent.
Regarding the banking sector, it should be noticed the Central Bank will hold its policy interest rate at a low level (at 1.75 percent in May 2015), at least whilst inflation remains below the target level of 2.5 percent, and could further cut the mandatory reserve rate for credit. In this context, the continuous reduction of the foreign currency debt (more than half of credit outstanding is in foreign currencies) by the economic players should end up being offset by the increase in their debt denominated in the Romanian currency. Local banks, of which 90 percent are subsidiaries of Austrian, French, Greek, Dutch groups, will continue to repay their debts to their parent companies, whilst increasing their domestic deposit base.
The decline in company investments will ease thanks namely to the continuation of the loan guarantee program for the SME sector, as well as tax exemptions on reinvested profits. However, investments in the public sector will continue to be quite low because of bureaucratic complications to access European funds and the lack of appropriate local structure.
According to the study, these sectors will grow at a moderate rate: wood, cereals, oil crops, fertilizers, metals, medicines, machines, clothing exports. The exports to EU 27 increased at EUR 37,305 million in 2014, from EUR 34,508 million in 2013. Romania imports mainly from EU 27. So, in 2014 the imports value increase to EUR 44,103 million, from EUR 41,867 million in 2013.
An improvement of the Romanian economy will depend on the reduction of tax evasion which is linked to the underground economy, estimated at 30 percent of GDP, and the improved management of state-owned companies, often lossmaking. (Source: business-review.eu)
