WOOD Flash – EME Macro: Romania politics – PNL government voted in

The recently-nominated PNL government, led by Mr. Ludovic Orban, has been voted in by parliament, with 240 votes (233 are needed for a majority). The parliament majority that backed the government is thin and very fragmented; while we are approximately 12 months away from the general election, so not leaving much room for deep structural reforms in the short term, in our view. We expect more transparency, a cooperative stance with the EU, a pro-business approach, and governing with some fiscal prudence, while maintaining the deficit below 3% and not breaching any agreements with key partners (EU) being explicitly stated as objectives for the next 12 months. The budget deficit as at 9M19 stood at 2.6%, and there is a high probability of climbing above (albeit not by much) the 3% threshold this year. However, the external macro backdrop remains supportive, and a fiscal adjustment will not derail the macro story, we do not see a risk for the credit rating at this stage, and the change in the government should reshape the dynamic with the EU Commission positively, in our view. The 2020E budget process, which should start shortly, will be the key thing to watch in the short term, also providing more light on the thinking of the new government and measures targeted for next year. The presidential elections (first round on 10 November) will be more indicative of voters’ sentiment towards PSD, in our view, rather than potentially changing the political landscape. The focus should be on how the general election race in 4Q20E develops, where the polls are indicating a PNL-led coalition at this stage, with PNL and USR+PLUS having a wide margin of more than 20% over the centre-left parties.