This report covers the main Romanian macroeconomic releases of January 2014 as well as financial and political trends in the country during this period. The report also reviews corporate news for firms including Volksbank Romania and Romania’s largest bank, BCR.

The latest updates on short-term real sector indicators (particularly retail, exports, and industrial activity) are increasingly encouraging. But the political turmoil ahead of European and presidential elections this year puts at risk the growth that could otherwise consolidate and improve in terms of sustainability during 2014. The junior ruling party has become more active and even critical of the senior partner, which is now worried about its position in the rather unusual coalition. A split between the PSD and PNL would not put political stability at risk but would further deteriorate the activity of public administration.

The IMF completed the second quarterly review of the standby agreement with Romania, but many key issues remain in limbo. President Basescu vetoed the first review on grounds that the government is enforcing unnecessary tax hikes and it remains unclear whether he will green-light the second review. The government expressed broad optimism but insists on hiking car fuel excise taxes as of April 1.

Key Points:

• In corporate news, Volksbank Romania will sell EUR 600mn in bad loans, while BCR, Romania’s largest bank, saw its Q4 loss reducing 2013 profit. Overall, the banking system ended 2013 in profit despite deep losses in Q4.

• Romania’s GDP will accelerate to 2.7% in 2015–2016, according to the World Bank; the EBRD, on the other hand, has kept Romania's 2014 GDP growth projection unchanged at 2.4%.

• The country’s industrial output rose 9% year on year in November, up 7.6% year on year in January–November.

• Romania’s credit quality ratios improved at end-2013 due to its shrinking balance sheets.

• Despite some positive results in the prosecution of high level corruption cases, corruption at low, middle and top levels remains a significant problem in Romania, the EC said in its first Anti-Corruption Report.