Report
Hai Thanh Le Phuong

Political Stress In Romania - Macro And Equity Comments From Concorde Securites

Political stress in Romania

Macro

 

  • We have compared Romania in our 2018 April report to the Medgyessy cabinet in Hungary in 2002, which led the economy to the slippery road of populist fiscal extravagance. The recent announcement of planned emergency measures of the Romanian government show resemblance to the fiscal steps pioneered by yet another Hungarian cabinet, the Orbán government earlier this decade. Romania seems to have compressed the fiscal irresponsibility and the unorthodox solutions into one government cycle vs. the 3 government terms required in Hungary. Looking at the glass as half-full, we can say that the deterioration of stock imbalances (debt) in this way may be capped sooner, hence the eventual worsening of balance sheet exposure may be smaller too. The question mark is whether or not the use of extraordinary measures coincides with a change of attitude towards fiscal policy, as eventually happened in the Hungarian case.

 

  • The problem with the Romanian measures is that the chosen solutions seem to be capable of suppressing the economic activity. The measures’ effect is a major deterioration in the working environment of the private economy, most importantly that of banks. Given the rather severe nature of the fiscal burden planned, there is the likelihood that these measures would exert negative effect on their activity – investments by the utility sector and lending by banks.

 

  • Banks have provided ample lubricant to the economy in recent years – system-wide they saw an increase in domestic loans approaching 6% of GDP by the end of October.
Provider
Concorde Securities
Concorde Securities

Concorde Securities Ltd. is Hungary’s leading independent company engaged in investment banking activities. It provides its clients with integrated financial services, including securities trading, research, corporate financing advisory, capital market transactions, wealth management and investment advisory. The operational management of the company is the responsibility of the CEO, while the owners/managers (who control one-third of the company through their shares and options) are in charge of its strategic governance. Concorde Securities Ltd. is a member of the Budapest, Frankfurt, Warsaw and Bucharest stock exchanges, as well as of the Hungarian Association of Investment Service Providers.

Analysts
Hai Thanh Le Phuong

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