Romania’s merchandise trade gap widened by 1.6% y/y to EUR1.1bn (FOB/CIF) in March, according to preliminary data released by the state statistical institute. The worsening was not significant, as it comes after strong deficit growth reported almost in the entire last year. Both export and import flows weakened compared to the rest of the year, but the most significant slowdown was in import growth, mostly from the EU. The developments are not surprising, because domestic consumption has already signaled moderation in the period. Even so, merchandise imports in March reached the highest level on record, backed by a still strong domestic demand. Export growth tempered down too, but less significantly. Exports to non-EU market accelerated growth in March, most probably backed by some improvement in car and pharmaceutical exports outside the EU. Therefore, the merchandise trade balance with the EU improved in annual terms in March, for the first time in about a year.
Generally, the annualized external trade gap stayed broadly the same, at 6.5% of projected GDP but was down from 6.9% of GDP at end-December. We note though that the deficit’s share to GDP improved compared to last year only on the back of a higher GDP estimate. Romania’s external trade balance has been worryingly deteriorating in the past years, as imports were surging to cover a private consumption boost. The government continues expansionary income policies that fuel demand, but consumption started to slow down due to rising uncertainties regarding future incomes and inflation acceleration. In addition, monetary tightening and steeper inflation expectations would very probably negatively affect consumer mood. At the same time, exports might be encouraged by the projected local currency depreciation. We expect trends to continue, so the trade deficit widening might soften or even reverse.