Romania: steady as we go
The near-term outlook is quite favourable. Growth rebounded considerably in the second half of 2013, led by resurgent exports and a good harvest boosting annual real GDP growth to 3.5% y/y. Given the continued economic recovery in the eurozone, we expect exports to accelerate further this year and boost GDP growth further. The recovery should continue in coming years. That said, we expect the economy to operate below its potential. Inflation should continue to be well behaved over the next two years and the current account to remain sustainable. The main risk comes mostly from political uncertainty and any further delay in important reforms.
Hungarian central bank continues to ease
We believe the Hungarian central bank (MNB) is likely to continue its policy of 'baby-step' rate cuts and cut is key policy rate by another 10bp to 2.50% at next week's Monetary Council meeting. This is also the consensus expectation. Overall, the continued rate cuts are justified by the Hungarian economy heading for outright deflation within the next couple of months. Hence, inflation is well below the MNB's official 3% inflation target and as growth remains slow further monetary easing seems warranted.
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