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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011 BUCHAREST STOCK EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Economic and Political Environment The government will continue to face legal challenges from the opposition as it tries to pass laws through parliament by "taking responsibility" for legislation, which prevents laws from being debated, or amended, in parliament. This in effect forces the opposition to call a vote of no confidence, which requires a majority of both chambers of parliament (236 out of 471 potential votes, regardless of the number actually voting) to be successful and overturn the legislation. The government "assumed responsibility" for the draft unitary wage law and the draft law on the publicsector wage bill for 2011 on December 14th. The opposition filed votes of no confidence in the government to oppose the bills, but both attempts to defeat the bills failed. The unitary wage bill, which establishes a single wage "spine" for all public-sector workers, with jobs graded according to predetermined rules and a maximum differential between the highest and lowest wage, will enable the government to determine the total size of the public-sector wage bill and prevent the payment of arbitrary wages as a form of political patronage. The public-sector wage law for 2011 establishes that publicsector wages will rise by 15% in 2011 compared with their October 2010 level, following the 25% cut in public-sector wages in July, which opposition parties, together with the junior coalition partner, the Hungarian Union of Democrats in Romania (HUDR), had viewed as a temporary measure. Both bills were required under the IMF stand-by agreement. Economic Environment The continued build-up of stocks in the third quarter prevented a more substantial fall in GDP than the recorded year-on-year fall of 2.5% (2.2% when adjusted for seasonality and the number of working days). The Economist Intelligence Unit estimates on the basis of data provided by the National Statistical Institute (INSSE) that increases in stocks were equivalent to 5.2% of GDP (unadjusted for seasonality and the number of working days) in the third quarter of 2010, compared with 0.9% in the year-earlier period. Additions to stocks, after adjusting for seasonality and the number of working days, were equivalent to 3.7% of GDP. There was also a modest improvement in net exports, which rose from minus 7.2% of GDP in the second quarter to minus 4.3% in the third quarter on a gross basis, while the trade deficit (including services) improved as a percentage of GDP in each quarter of 2010 (adjusted for seasonality and the number of working days). Data from the INSSE indicate that gross fixed capital formation (GFCF) grew from the equivalent of 17.1% of GDP in the first quarter to 26.8% of GDP in the third quarter on a gross basis, while consumption fell from 90% of GDP to 72.2% over the same period. However, after adjusting for seasonality and the number of working days, GFCF fell from 25% of GDP in the first quarter to 21.3% in the third quarter, while consumption rose slightly from 79.6% to 80.7%. GFCF (on a gross basis) fell by 13.7% year on year in the third quarter and by 16.1% in the first three quarters. Sovereign risk Stable: Domestic public debt is rising fast, but foreign-exchange reserve coverage is good. The Economist Intelligence Unit expects the authorities to sign a new IMF agreement in early 2011, and Romania should not experience financing difficulties in 2011-12. Currency risk Stable: Estimates of equilibrium exchange rates suggest that the leu is still overvalued, posing problems for competitiveness. Although the leu steadied in the third quarter of 2010, it remains vulnerable to negative market sentiment. Banking sector risk Stable: The risk of contagion from the Greek crisis has receded. However, the wider euro zone crisis remains a cause for concern. Banks face deteriorating asset quality and rising provisioning costs that are squeezing profits. * The Economist Intelligence Unit, January 10, 2011 Information obtained from the Exchange. Key Information Contacts National Securities Commission www.cnvmr.ro National Bank of Romania www.bnro.ro National Institute of Statistics www.insse.ro Ministry of Public Finance www.mfinante.ro Romanian capital market www.kmarket.ro Romanian Asset Management Association www.aaf.ro Private Pension System Supervisory Commission www.csspp.ro PAGE 52
FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011 BUCHAREST STOCK EXCHANGE ROMANIA ECONOMIC CHARTS AND TABLES Economic Indicator/Year Unit 2008 2009 2010 2011 2012 2013 2014 GDP EUR bn 136.8 117.0 123.6 134.1 147.1 161.9 178.9 GDP % 7.1 -7.7 0.5 2.4 3.7 4.4 5.2 Exports EUR bn 33.6 26.1 26.4 27.7 29.5 31.7 34.6 % 13.80 -22.39 1.34 4.57 6.65 7.29 9.16 Import (FOB) EUR bn 52.0 33.0 34.0 36.0 39.0 42.6 46.9 % 9.80 -36.50 3.09 5.79 8.33 9.07 10.27 Trade Deficit (FOB-FOB) -18.372 -6.92 -7.59 -8.35 -9.51 -10.9 -12.37 Current Account EUR bn -16.897 -5.37 -6.27 -7.04 -7.28 -8.12 -8.76 % of GDP -12.35 -4.59 -5.07 -5.25 -4.95 -5.02 -4.90 Average Gross Salary RON 1,682 1,767 1,836 1,920 2,020 2,130 2,282 Growth Rate vs. Year Before % 26.40 5.05 3.90 4.58 5.21 5.45 7.14 Average Real Wage Growth % 16.50 -2.30 0.20 1.10% 2.30 2.70 4.60 Exchange Rate RON/EUR 3.6827 4.25 4.25 4.2 4.15 4.1 4.05 -9.38 -15.40 0.00 1.18 1.19 1.20 1.22 RON/USD 2.5189 3.0600 3.0600 3.0200 3.0000 2.9500 2.9100 -21.48 0.00 1.31 0.66 1.67 1.36 Inflation % 6.3 4.5 3.5 3.2 2.6 2.3 2 Unemployment % 4.4 7.6 6.2 5.7 5.3 4.9 4.6 Source: CNP (Comisia Nationala de Prognoza) Source: Romania: Economy 2010 - Forecast and economic outlook for the Romanian Economy | Romania Central PAGE 53
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