The report covers info as of November 18.
Opposition’s candidate Klaus Iohannis unexpectedly won the presidential elections against the ruling coalition’s candidate, PM Victor Ponta. This changed radically the political landscape, but it is not clear yet in what direction. If early elections are held now, without any poll we can indicate that the voters would be really puzzled—but they would for sure not extend the same massive support to Iohannis’ party PNL. There are no incentives for immediate early elections, but such a scenario is highly likely before the regular elections’ deadline in late 2016.

Opposition’s largest party PNL announced that it wants to form own government sometime in 2015-2016 – but did not specified intermediary steps. At this moment, the opposition will predictably let coalition of leftist PSD to face the delicate issue of 2015 budget planning. PNL will predictably wait until the credibility of leftist PSD falls to the lowest possible level and only afterwards take advantage of the [supposed] voters’ support. But PNL is probably also aware that voters’ sentiment was mainly against corrupt politicians and not in favour of any political party. Therefore any major step will be carefully prepared on both sides.

A first positive effect of the presidential elections was that the Parliament unblocked anticorruption procedures and abandoned the idea of a pardoning bill – visibly aimed at helping corrupt politicians. If continued, the stance will be visible in a more positive report of the EC under the Cooperation and verification Mechanism on judicial reforms.

Economically, the latest developments were also unusual and even surprising. The statistics office estimates 1.9% q/q and 3.2% y/y GDP growth in Q3 – which puzzled the bank analysts. It was only a flash estimate and detailed data will be released in early December. Jan-Sep GDP growth was 2.8% y/y. The drivers of the growth remain largely unclear. The European Commission adjusted downward its forecast for Romania’s 2014 GDP growth by 0.5pps to 2%, in its Autumn Forecast published on November 4. Romania’s GDP will advance by 1.8% this year and 2.2% in 2015, according to a revised projection from the largest local bank BCR, part of the Erste Bank Group.

Romania’s finance ministry said the general government budget posted a marginal 0.06%/GDP surplus in Jan-Sept 2014, compared to a 1.3%/GDP deficit a year earlier. The fiscal gap was 0.52% of GDP in H1, while the budget posted a 0.58%/GDP surplus in Q3 alone. Country’s general government surplus reported is however not good news as long as detailed data reveal fragile current revenues and lack of investments, the head of the independent fiscal council, Ionut Dumitru, explained.

Romania's current cabinet will draft plans for the 2015 budget for discussion with International Monetary Fund (IMF) experts in early December, but the first draft will be discussed again by the next cabinet - to be appointed after the November 16 presidential elections - in mid-January, Finance Minister Ioana Petrescu said on Nov 6.

Key Points
• Opposition’s Klaus Iohannis wins presidential elections
• PM Ponta wants to remain in office after losing presidential elections ; opposition party PNL plans to form new government in 2015 or 2016
• Government expected to submit 2015 budget planning
• Q3 GDP up unexpectedly by 1.9% q/q; grows 3.2% y/y; details not released yet
• Industrial growth eases to 4.1% y/y, output contracts by 1.2% q/q in Q3
• Construction work up 2% q/q in Q3 on low base; 11.2% down y/y
• Romania’s retail sales up 5.5% y/y in Q3
• Headline inflation eases at 1.44% y/y in Oct; central bank adjusts downward inflation projections
• Public debt rises y/y by 3.3% of GDP at end-Aug, debt/GDP ratio at 38.9%
• BIS-reporting banks increase exposure to Romanian banking system in Q2 – BIS
• Local banks to incur EUR 450mn losses in 2014, says central bank
• Loans to Romanian non-government sectors down 4.5% y/y at end-Sept 2014
• C/A gap widens 35% y/y to still narrow EUR 558mn in Jan-Sep