Romania Watch: Large current account deficit persisted in April
Both the foreign trade and the current account deficits remained elevated in April, following the increases recorded in Q1 2021 from Q4 2020. As a result the current account deficit in 2021 might exceed our forecast of 6.0% of GDP.
| External imbalances remained elevated in April |
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| NBR, NIS, RBI/Raiffeisen Research |
| In-house seasonally adjusted data; estimated GDP for January-April 2021; 3-month moving averages |
According to our in-house seasonally adjusted data, the deficit for foreign trade with goods and services was close to EUR 1.36 bn in April, slightly above the level of EUR 1.3 bn from March. Also, our estimates place the current account deficit at a level of EUR 1.5 bn in April, almost similar to that recorded in March. We estimate that the deficit of foreign trade with goods and services from January-April was close to 6.0% of the GDP, a level which is substantially above that of 4.5% of GDP recorded in the full year 2020. Also, our estimates place the current account deficit from January-April at a level close to 7.2% of the nominal GDP, so being significantly above the level of 5.3% of GDP recorded in the full year 2020.
Elevated levels of external imbalances from April were further determined by the ongoing faster advance of imports of goods and services than that of exports. Thus, according to our in-house seasonally adjusted data, value of exports of goods and services in EUR equivalent increased by 1.7% in April from March. The monthly gain in April was limited by the segment of exports of services which decreased by 1.4% from March. However, the value of exports of goods advanced by 2.9% mom in April on the background of improving external demand. As a facet of the good performance of exports, manufacturing output increased by 6.2% in April from March and gains were recorded in almost all industrial branches. On the other hand, the value of imports of goods and services increased faster than the value of exports, i.e by 2.1% in April from March, revealing a sustained upward trend in domestic demand and activity.
We expect the performance of exports of goods and services to improve further in the following periods on the back of strengthening external demand, limiting the advance of the foreign trade deficit. Our baseline scenario places the current account deficit at 6.0% of GDP in 2021, but April’s data suggest important risks to the upside (effective level of the current account deficit would exceed our forecast).
| Growth of exports and imports of goods accelerated recently |
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| NBR, RBI/Raiffeisen Research |
| In-house seasonally adjusted data; fixed base indexes (January 2020=100); last data as of April 2021 |
| Foreign trade deficit and current account deficit still elevated in April |
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| NBR, NIS, RBI/Raiffeisen Research |
| In-house seasonally adjusted data; estimated GDP for January-April 2021; 3-month moving averages |
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Inflation increased further in May, surprising to the upside in many markets including the US (for CEE, Czechia being a notable exception), and inflation will likely stay elevated in upcoming months, though we should be close to/at the peak in several markets. Monetary policy is reacting with the Russian Central Bank hiking today by further 50bp and the Ukrainian National Bank being under pressure to tighten further at its meeting next week (we, though, believe that the hike will be postponed). The ECB confirmed its prevailing course this week, while the FOMC meeting next week will be watched for news on tapering. The (geo)political highlight next week is the meeting between Presidents Biden and Putin on Wednesday. In the euro area, only the industrial production result will be the relevant data point next week. In CEE, Romanian and Russian output and Polish wage data are to be released next week. |