Romania leads Hungary in risk survey while Croatia nosedives

Romania’s declining score trend in the ECR survey reversed last year and the country continued to improve in the first months of this year to reach 48.9 points out of a possible 100, beating Hungary and poised to overtake free-falling Croatia.

Compared with Croatia, just one place above, and Hungary, still languishing one place below, Romania’s stronger fundamentals suggest Moody’s negative watch on its Baa3 rating is unjustified.

Having regained 69th spot in ECR’s 186-nation global rankings, five places higher than its position in June 2013, the sovereign is now less than one point, and two places, below the third of ECR’s five tiered categories, which equates to a BB+ to A- rating in the survey methodology.

There can be no doubt that Romania is a riskier prospect than many other countries in central and east Europe, not least the Czech Republic, Estonia, Slovakia and Poland, all tier-two sovereigns on higher scores in the survey.

The country also faces the uncertainties associated with presidential elections later this year.

However, the economy is performing beyond expectations, helped by lower interest rates. Real GDP increased by a seasonally adjusted 1.7% quarter-on-quarter during the final three months of last year and 5.2% year on year (y/y), giving an average rise of 3.5% for 2013. At year-end, inflation was under control, at 1.3% y/y, and the unemployment rate had slipped to 7.1%.

Improving economics

The current-account deficit, moreover, is manageable, with inward foreign direct investment having increased by 27% to €2.7 billion in 2013. The general government gross deficit is below the 3% EU barrier, and while debt is rising, it is under 40% of GDP, less than half the EU average.

Dimitria Rotsika, economic analyst at Piraeus Bank Group, states: “There is a long way that the country has to go – especially in terms of structural changes – but Romania is gaining momentum.

“Production has rebounded and the new deal with the IMF [precautionary financing] will provide stability. Additionally, the relaxation of monetary policy is something that will boost the local economy.

“Should this continue then the country might be able to return to its pre-crisis levels.”

Gheorghe Savoiu, senior lecturer at the University of Pitesti, adds: “Romania could be placed in the experimental period for accession to European Monetary Union – the two-year period (ERM II) for convergence to the euro.

“The last trimester of 2013 provided good signs for the Romanian economy.”

This article was originally published on Euromoney Country Risk (ECR), the global country rating service from Euromoney. To find out more, register for a free trial at Euromoney Country Risk.