Bucharest City Report - Q4, 2009
by Jones Lang LaSalle
The National Institute of Statistics reported that during Q3 2009, the Romanian economy contracted only 7.1% (y-o-y), an improvement over the contraction of 8.7% in Q2 2009. The main contributors to the Romanian economic downturn were soft retail sales and a weak construction sector.
However, several key economic monitors forecast measured yet clear improvement. Business Monitor International Viewa��s January 2010 Report cites: a��The Romanian economy appears to have passed the worst. The recovery will be weak and fragile, reflecting statistical base effects as opposed to a fundamental improvement in demand conditions.a��
With official data not yet released, 2009a��s economic growth is estimated to be between -5.7 to -7.7%. Economic recovery is expected in 2010, with positive growth (1%) returning in Q3, followed by 4% growth in Q4 2010. As agreed with the IMF, the new governmenta��s 2010 budget deficit will be around 5.7% of GDP. The focus of the 2010 budget is on reducing fixed costs by lowering the number of public sector employees by 150,000. Unemployment is expected to peak in 2010 at a rate of 8 - 8.5%.
Romaniaa��s Foreign Direct Investment in the first 11 months of 2009 reached a�� 3.8 billion, and for the entire year it is estimated not to exceed a��4.2 billion. For 2010, an increase of 7-10% is expected, while a higher level should return in 2011. The recently announced infrastructure projects, such as the construction of the A3 highway and metro line expansions will further support medium term development of Romaniaa��s FDI. Investor sentiment towards Romania is expected to improve in 2010 due to the relative stability of the political situation after the presidential elections (see below) and to the general improved perception Eastern Europe.
2009 ended with the re-election of the incumbent president who is a strong proponent of anti-corruption reforms. However, a very thin coalition supported the nomination of the Prime Minister and his team. This, together with the necessary austerity measures, will test the new governmenta��s resolve and Romaniaa��s solid recent track record of social and political stability.
Throughout 2009, transactional activity in the CEE region, and Romania in particular, remained significantly restricted. The funds monitoring Romania in 2009 remained to be the value-add and more aggressive opportunity funds with pricing expectations far under those of the vendors. Investor focus is firmly set on income sustainability and asset fundamentals (location, access, construction quality and layout). While 2010 may prove another challenging year, we strongly expect investment activity to increase above 2009a��s historic low levels. However, a more robust transaction market will require greater flexibility and acceptance of structure deals, bank pressure on non-performing loans and increased clarity on the occupier markets.