Macroeconomic Situation

January 2014 Valentyn Povroznyuk, Radu Mihai Balan, Edilberto L. Segura

• Industrial production grew by 10.6% yoy in October 2013. • The consolidated budget deficit reached 1.56% of GDP at the end of November 2013. • Consumer inflation decelerated to 1.83% yoy in November 2013. • The foreign deficit reached EUR 611 million in January-October 2013. • The current account deficit expanded to EUR 955 million at the end of October 2013.

Executive Summary Growth of industrial production accelerated to 10.6% commercial rates on national currency loans in No- yoy in October, as high growth in manufacturing was vember. Therefore, progress in stimulation of nation- supported by double-digit growth in the energy sector. al currency lending is rather moderate. The volume Mining and quarrying continued to decline during the of RON-denominated loans increased for the second month but at an accelerated rate. Trade and services month in a row, but the level of growth decelerated grew at the same rate as a month ago despite a 5.0% yoy to 1.4% yoy. The volume of forex-denominated loans drop in services to the population. continued to decline at rates much higher than the rate of growth of volume of national currency loans. A balanced fiscal policy allowed the government to Therefore, total non-government loans declined in keep the consolidated general budget deficit within the November. target levels in January-November 2013. Deceleration in growth of budget revenues was compensated for by High demand for Romanian goods supported the up- deceleration in growth of expenditures. The govern- ward trend of Romanian in October. At the ment managed to preserve growth of the major and same time, the slow growth of helped keep the non-tax revenues, but a growing wage bill and payment trade deficit at its lowest level over the last couple of of the budget institutions’ arrears put some pressure on years. In particular, in January-October 2013, the total the government in order to meet the budget deficit tar- foreign trade deficit remained around one tenth of the get. amount registered over the same period in 2012. Good performance in foreign trade helped restrain the current Consumer inflation continued to decelerate on the back account deficit, which is actually being fed by a grow- of decreasing food prices. Total consumer inflation to- ing deficit of the income account. The income account taled 1.83% yoy in November, despite some accelera- deficit grew by a quarter in one month. As a result, the tion in non-food goods prices and prices of services. current account deficit also expanded significantly. The lowered the policy However, it still remained at a level much lower than rate, which transferred rather slowly into a decline in that of the same period last year. 2008 2009 2010 2011 2012 2013 GDP growth, % yoy 7.1 -6.6 -1.6 2.5 0.2 2.7 GDP per capita, USD 9,497 7,649 7,667 8,863 8,030 8,080 Industrial production, % yoy 0.9 -5.5 5.5 5.6 0.0 7.0 Retail sales, % yoy 13.0 -10.3 -5.3 -2.5 2.9 3.5 Budget balance (cash methodology), % GDP -4.9 -7.3 -6.4 -4.3 -2.5 -2.2 Government external debt, % GDP 13.4 23.6 30.5 34.7 37.8 38.0 Inflation, eop 6.3 4.7 8.0 3.1 5.0 3.1 Gross international reserves, EUR billion 28.3 30.9 36.0 37.3 36.4 37.0 Current account balance, % GDP -11.6 -4.2 -4.4 -4.5 -4.0 -3.6 Gross external debt, % GDP 51.8 68.7 74.4 75.2 75.1 75.0 Unemployment (ILO methodology), % eop 5.8 6.9 7.3 7.4 7.2 7.0 Exchange rate RON/EUR, annual average 3.68 4.24 4.21 4.24 4.45 4.5

Economic Growth GDP growth, % yoy Growth of industrialUkrainia productionn Industry and Exports remained of Goods, andat Wodoublerld digits level for the second month 6,0 Steel Price Index, % yoy in a row in October.50% The total increase in the 20%sector accelerated to 10.6% yoy from 4,0 40% 16% 2,0 30% 12% II III IV IIIIII IV 10.0% yoy observed20% a month ago. The acceleration8% was mainly attributed to faster 0,0 III III IV III III IV III III 10% 4% -2,0 growth in the energy0% sector, which overwhelmed0% the accelerated decline in mining -10% -4% -4,0 and quarrying. In-20% particular, growth of electricity,-8% gas, steam, and air conditioning -6,0 supply was equal to 11.1%2010 yoy,201 which1 is201 9.1%2 13higher than a month ago. At the same -8,0 World Carbon Steel Price Index, left scale 2009 2010 2011 2012 2013 Industrial Production, 3m MA, right scale -10,0 time, mining and quarryingExport of goods, dropped 3m MA, left 2.5%scale yoy in October, which is 1.4% more than Source: INSSE in September. TheSour reasonsce: MEPS, NBU, Thefor Bleyzer such Foundation an increase in the energy sector are larger produc-

Copyright © SigmaBleyzer, 2014. Chief Economist Edilberto L. Segura Industrial production by selected branches All rights reserved. Editor Rina Bleyzer O’Malley 80 1 80 60 12 60 40 7 20 40 0 2 -20 20 -3 -40 0 -60 -8 OctONovDec Jan FebMar AprMay JunJul Aug Sep ct -20 2012 2013 -40 Industry, right scale Food products Coke and refined petroleum products Chemicals and chemical products -60 Basic metals Motor vehicles, trailers, and semi-trailers -80 Source: INSSE 2009 2010 2011 2012 2013 World Carbon Steel Price Index World Fertilizer Price Index Consolidated budget balance % of GDP Source: MEPS 0,5 0 -0,5 -1 -1,5 -2 -2,5 -3 Jan FebMar AprMay JunJul AugSep OctNov Dec 2012 2013 Source: Ministry of Public Finance of Romania

Inflation indexes, growth % yoy 8 7 6 5 4 3 2 1 0 -1 NovNDecJan FebMar AprMay June July AugSep Oct ov -2 2012 2013 CPI PPI Foods Non-foods Services Source: INSSE

Selected monetary indicators, growth % yoy 12 10 8 6 4 2 0 NovNDec JanFeb MarApr MayJun JulAug SepOct ov -2 20122013 -4 -6 Money supply Non-government credit Non-government deposits Source: NBR

Monthly foreign trade balance 40 0,4 35 0,2 30 25 0 20 15 -0,2 10 -0,4 5 0 -0,6 -5 -0,8 -10 -15 -1 OctONovDec JanFeb MarApr MayJun JulAug Sep ct 2012 2013 Balance, EUR bln. Imports, % yoy (left scale) (right scale) Exports, % yoy (left scale) Source: NBR

Current account components and FDI, EUR billion 0,8 0,6 0,4 0,2 0 -0,2 -0,4 -0,6 -0,8 -1 -1,2 OctONovDec JanFeb MarApr MayJun Jul AugSep ct 2012 2013

Trade in goods balance (left scale) Trade in services balance (left scale) Incomes balance (left scale) Current transfers balance (left scale) Current account balance (right scale) FDI (right scale)

Source: NBR, INSSE GDP growth, % yoy Ukrainian Industry and Exports of Goods, and World 6,0 Steel Price Index, % yoy 50% 20% 4,0 40% 16% 2,0 30% 12% II III IV IIIIII IV 20% 8% 0,0 III III IV III III IV III III 10% 4% -2,0 0% 0% -4,0 -10% -4% Romania -20% -8% -6,0 2010 2011 2012 13 -8,0 World Carbon Steel Price Index, left scale 2009 2010 2011 2012 2013 Industrial Production, 3m MA, right scale Macroeconomic Situation-10,0 of goods, 3m MA, left scale Source: INSSE Sour Januaryce: MEPS, NBU, The 2014 Bleyzer Foundation tion of electricity by wind power stations and early supply of heating caused Industrial production by selected branches by unusually cold weather during the month. As for manufacturing, its growth 80 remained80 almost unchanged at 11.2% yoy in October. This high growth was 60 12 60 40 7 supported by robust year-over-year growth rates of such sectors as food in- 20 40 0 2 dustry, transport means, and electrical equipment. Thanks to strong monthly -20 20 -3 performance of industrial production in October, the total growth of industrial -40 0 -60 -8 production accelerated to 7.4% yoy in January-October, compared to 7.0% yoy OctONovDec Jan FebMar AprMay JunJul Aug Sep ct -20 2012 2013 in-4 0January-September. Manufacturing was still the sector making the largest Industry, right scale Food products Coke and refined petroleum products Chemicals and chemical products contribution-60 to this growth with its 8.8% yoy increase over the period. Growth Basic metals Motor vehicles, trailers, and semi-trailers of-8 0mining and quarrying decelerated to .6% yoy, while the energy sector im- proved its performance, declining by 2.5% yoy compared to a 3.9% decline Source: INSSE 2009 2010 2011 2012 2013 observed over WorldJanuary-September. Carbon Steel Price Index World Fertilizer Price Index Consolidated budget balance In October 2013, the trade and services sector maintained its growth at around 2% yoy,% of GD whichP a level first observed a month Source: MEPS 0,5 ago. This growth was generated by trade alone. Durables grew by 2% yoy on the back 0of an increase in sales of food. Non-du- rables, in turn, grew by around 4% yoy thanks to information technology and communication-0,5 sector performance, which offset the deceleration registered in sales of furniture, appliances and motor vehicles.-1 In particular, retail trade grew by 2.2% yoy on the back of a 3.5% increase in sales of non-food products, a 2.4% increase -1in,5 sales of food, beverages, and tobacco. Retail sales of motor vehicle fuel in specialized shops remained almost flat. Dynamics-2 of market services to households once again returned to negative territory. The total volume of services provided to the population-2,5 declined by 5.0% yoy in October -3 GDP growth, % yoy after a 1.5% yoy increaseUkrainia a nmonth Industry an ago.d Exports Decelerated of Goods, and Worl dgrowth in the hotels and restaurantsJan sectorFebM6,0 ar (1.5%AprMay yoy)JunJ ulsupportedAugSep OctN byov Dehighc Steel Price Index, % yoy 4,0 50% 20% 2012 2013 growth in textile and 40fur% products cleaning services16% (9.0% yoy) could not compensate for declines2,0 in other subsectors. 30% 12% Source: Ministry ofII PublicIII IV IIFinanceIIII IV of Romania 20% 8% 0,0 III III IV III III IV III III Fiscal Policy 10% 4% -2,0 0% 0% -10% -4% -4,0 The consolidated general-20% budget deficit expanded-8 %in November but remained within the-6 limits,0 agreed with international 2010 2011 2012 13 -8,0 organizations. The total deficitWorld Carbon increased Steel Price Index, leftby scal almoste 30% in one month and reached InRONflatio n9.8 in2009dexe billions, grow2010 th(EUR % yo2011y 2.22012 billion)2013 in Industrial Production, 3m MA, right scale 8 -10,0 Export of goods, 3m MA, left scale January-November 2013. This is 1.56% of GDP or 0.35% higher than a month ago. At the sameSource: INSSE time, the budget primary Source: MEPS, NBU, The Bleyzer Foundation 7 balance declined to 0.1% of GDP. 6 5 Even though the government managed to preserve dynamics of almost all tax and non-tax4 Indu revenuesstrial producti aton bylevels selected observedbranches one month ago, growth of the total consolidated general budget revenues slightly decelerated3 to80 4.1% yoy in January-November 80 60 12 2 40 2014. Total revenues reached60 RON 182.6 billion (EUR 41.084 billion) or 29.2% of GDP. Growth of revenues decelerated only7 1 20 for corporate profit tax40 and the VAT among all the tax revenues at the state level. In particular,0 growth of corporate profit2 0 -20 20 NovNDecJan FebMar AprMay June July AugSep Oct -3 ov tax revenues decelerated to 1.2% yoy in January-November (1.5% yoy in January-October),-1 -40 while growth of VAT revenues 0 -2 2012-60 2013 -8 OctONovDec Jan FebMar AprMay JunJul Aug Sep ct decelerated to 4.0% yoy-20 (4.2% yoy). In contrast, in January-November, personal income taxCP revenuesI PP2012I Fo odands Noexcisen-food2013s taxServ icesrevenues -40 Source: INSSEIndustry, right scale Food products grew at the same or higher rate as that observed in January-October at 7.9% yoy and 3.4% yoy,Coke an drespectively. refined petroleum products RevenuesChemicals and chemical pr oductsfrom -60 Basic metals Motor vehicles, trailers, dividends, use tax on goods, and selling emissions certificates were much larger compared to those for the sameand semi -tperiodrailers of the -80 previous year. Together they generated an additional RON 1.227 billion (EUR 276 million)Source: of INSSEbudget revenues compared to 2009 2010 2011 2012 2013 January-November 2012. At the localWorld Carbon level, Steel Price growth Index of revenues continued to decelerate World Fertilizer Price Index SelectConsolidateded moneta rybudget indi balanccatorse, growth % yoy 12 % of GDP in November. In particular,Source: MEP Sgrowth in property tax revenues remained the same as in 0,5 10 January-October at 6.2% yoy, while growth of non-tax revenues decelerated from 4.6% 0 8 yoy to 4.2% yoy. -0,5 6 -1 4 -1,5 Government managed to restrict growth of its expenditures over eleven months of 2013.2 -2 The total general government expenditures grew by 3.3% yoy, which is almost 1% lower0 -2,5 NovNDec JanFeb MarApr MayJun JulAug SepOct ov -2 -3 than growth of revenues. At the same time, the total amount of expenditures reached 20122Jan FebMar AprMay JunJul Au01gS3 ep OctNov Dec -4 RON 192.4 billion (EUR 43.289 billion) or 30.8% of GDP in January-November. The 2012 2013 -6 Source: Ministry of Public Finance of Romania Money supply Non-government credit largest increase among the expenditures was observed in the wage bill at 13.6% yoy due Non-government deposits to mentioned earlier increases in wages in line with the policy to return them to the pre-crisisSource: NB level.R Spending on goods and services expanded by 11.3% yoy mainly due to legislative measures aimed at ensuring paymentIn flofat ioarrearsn indexes, growof thbudget % yoy organiza- tions at state and local levels. Total investment expenditures, which include capital expenditure8 and the related development Monthly fore7 ign trade balance programs financed from internal and external sources, grew by almost 12% in one month40 and6 reached RON 25.3 billion from0,4 35 5 0,2 30 25 4 0 Headquarters Bucharest20 Office,3 Romania 15 -0,2 2 123 N. Post Oak Ln., Suite 410 12Bis,10 Dr. Draghiescu St., Sect. 5, -0,4 5 1 Houston, TX 77024 USA Bucharest , 050579 -0,6 0 0 -5 NovNDecJan FebMar AprMay June July AugSep Oct ov-0,8 Tel: +1 (713) 6213111 Fax: +1 (713) 6214666 Tel: +40-10 (21) 4101000-1 Fax: +40 (21) 4102222 Email: [email protected] Email:-1 [email protected] 2012 2013 -1 OctONovDecCPI JanFPPIeb MaForAodspr MaNoyJn-unfoodJus lAugServSeicesp ct 2 2012 2013 Source: INSSE Balance, EUR bln. Imports, % yoy (left scale) (right scale) Exports, % yoy (left scale) Source: NBR

Selected monetary indicators, growth % yoy 12 10 8 Current account components and FDI, EUR billion 6 0,8 0,6 4 0,4 0,2 2 0 0 -0,2 NovNDec JanFeb MarApr MayJun JulAug SepOct ov -0,4 -2 -0,6 20122013 -0,8 -4 -1 -1,2 -6 OctONovDec JanFMoneyeb supplMay rANopr n-govMayJernmenunt credJuitl AugSep ct Non-government deposits 2012 2013 Source: NBR Trade in goods balance (left scale) Trade in services balance (left scale) Incomes balance (left scale) Current transfers balance (left scale) Current acMcoonthlunt balancy foree (rigignht scaltrade)e balaFDncI e(right scale) 40 0,4 35 0,2 Source: NBR, 30INSSE 25 0 20 15 -0,2 10 -0,4 5 0 -0,6 -5 -0,8 -10 -15 -1 OctONovDec JanFeb MarApr MayJun JulAug Sep ct 2012 2013 Balance, EUR bln. Imports, % yoy (left scale) (right scale) Exports, % yoy (left scale) Source: NBR

Current account components and FDI, EUR billion 0,8 0,6 0,4 0,2 0 -0,2 -0,4 -0,6 -0,8 -1 -1,2 OctONovDec JanFeb MarApr MayJun Jul AugSep ct 2012 2013

Trade in goods balance (left scale) Trade in services balance (left scale) Incomes balance (left scale) Current transfers balance (left scale) Current account balance (right scale) FDI (right scale)

Source: NBR, INSSE GDP growth, % yoy Ukrainian Industry and Exports of Goods, and World 6,0 Steel Price Index, % yoy 50% 20% 4,0 40% 16% 2,0 30% 12% II III IV IIIIII IV 20% 8% 0,0 III III IV III III IV III III 10% 4% -2,0 0% 0% -10% -4% -4,0 -20% -8% -6,0 2010 2011 2012 13 -8,0 World Carbon Steel Price Index, left scale 2009 2010 2011 2012 2013 Industrial Production, 3m MA, right scale -10,0 Export of goods, 3m MA, left scale GDSource:P grow INSSEth, % yoy Source: MEPS, NBU, The Bleyzer Foundation Ukrainian Industry and Exports of Goods, and World 6,0 Steel Price Index, % yoy 50% 20% 4,0 40% 16% 2,0 30% 12% IndustIIrialIII prIVoducIIIItionII IVby selected branches 20% 8% 0,0 10% 4% 80 III III IV III III IV III III 80 -2,0 12 0% 0% 60 -4,0 -10%60 -4% 40 7 -20% -8% -620,0 40 2 2010 2011 2012 13 0 -2-80,0 20 World Carbon Steel Price Index, left scale 2009 2010 2011 2012 2013-3 Industrial Production, 3m MA, right scale -4-100,0 0 Export of goods, 3m MA, left scale -60 -8 Source: INSSE Source: MEPS, NBU, The Bleyzer Foundation OctONovDec Jan FebMar AprMay JunJul Aug Sep ct -20 2012 2013 -40 Industry, right scale Food products Coke and refined petroleum products Chemicals and chemical products -60 Basic metals Motor vehicles, trailers, and semi-trailers Industrial production by selected branches -80 Source:80 INSSE 80 12 2009 2010 2011 2012 2013 60 60 World Carbon Steel Price Index 40 7 World Fertilizer Price Index Consolidated20 budget balance 40 % of0 GDP 2 Source: MEPS -20,50 20 -3 -400 0 -60 -8 -0,5 OctONovDec Jan FebMar AprMay JunJul Aug Sep ct -20 -1 2012 2013 -40 -1,5 Industry, right scale Food products Coke and refined petroleum products Chemicals and chemical products -60 Romania -2 Basic metals Motor vehicles, trailers, and semi-trailers -80 -2,5 Source: INSSE -3 2009 2010 2011 2012 2013 Macroeconomic SituationJan FebMar AprMay JunJul AugSep OctNov Dec World Carbon Steel Price Index 2012 2013 World Fertilizer Price Index Consolidated budget balance %Source: of GDP Ministry of Public Finance of Romania JanuarySource: 2014 MEPS 0,5 0 the beginning of the year (4.05% of GDP). -0,5 -1 Inflation indexes, growth % yoy Monetary Policy -1,5 8 7 -2 Consumer inflation further decelerated in November 2013, driven by continuous de- 6 flation in the food goods sector. In particular, prices of food goods declined by 1.77%-2 ,5 5 -3 4 Jan FebMar AprMay JunJul AugSep OctNov Dec yoy over the reporting month. This was enough to compensate for some acceleration 3 of prices in non-food goods and services sectors. Moreover, the mentioned deflation 2 2012 2013 Source:1 Ministry of Public Finance of Romania led also to deceleration of total consumer inflation to 1.83% yoy from 1.88% yoy ob- 0 -1 NovNDecJan FebMar AprMay June July AugSep Oct ov served in October. It is expected that consumer inflation will remain low because of -2 2012 2013 CPI PPI Foods Non-foods Services favorable dynamics of food goods prices, but annual inflation in 2013 will exceed the Inflation indexes, growth % yoy Source: INSSE target level of 3%. 8 7 Stimulation of national currency lending brought some positive results, which, al- 6 though these results were still far from expectations. Growth of RON-denominated loans5 remained positive for the second 4Selected monetary indicators, growth % yoy month in a row in November. However, it inched down by 0.5% yoy during the month and312 reached 1.4% yoy. This decel- eration was caused by slower growth of corporate sector loans. Anyway, the total volume210 of RON-denominated loans was 18 still 1.5 times lower than that of forex-denominated loans in November. The latter, however,06 continued to decline during the month at a rate almost the same as a month ago. Total forex-denominated loans decreased-14 No vNbyDecJ 7.3%an FebM yoyar AprM inay JNovember.une July AugSep Oc t Theov -22 2012 2013 driving force of the decrease was a decline in corporate loans (-10.4% yoy) but forex household0 CP loansI PPI alsoFoods decreasedNon-foods Se rv(byices 4.0% NovNDec JanFeb MarApr MayJun JulAug SepOct ov -2Source: INSSE yoy). Overall, the total volume of non-government loans decreased by 4.1% yoy in November.201 22013 -4 Broad money (M3) continued to grow in year-over-year terms in November despite being-6 almost flat in monthly terms. In Money supply Non-government credit particular, broad money inched up by 0.5% mom over the reporting month. At the Non-government deposits same time, the year-over-year growth accelerated to 6.4% from 6.1% observed in Oc- SelSource:ected NBmoRnetary indicators, growth % yoy 12 tober. However, changes in the structure of broad money are even more interesting. 10 M8onthly foreign trade balance Net foreign assets declined by 10.2% mom in November, which led to a significant 0,4 406 35 0,2 decrease in year-over-year growth of net foreign assets (from 124.8% yoy in October 304 25 0 202 to 78.4% yoy in November). At the same time, net domestic assets grew by 5.2% mom 15 -0,2 100 -0,4 in November compared with a 3.2% mom decline a month ago. As a result, the year- 5 NovNDec JanFeb MarApr MayJun JulAug SepOct ov -20 -0,6 -5 20122013 -0,8 over-year decline of the indicator decelerated from 13.8% yoy to 7.5% yoy. The share --410 -15 -1 -6 OctONovDec JanFeb MarApr MayJun JulAug Sep ct of net domestic assets within broad money increased to 72.8%. Money supply Non-government credit 2012 Non-gover2nmen013 t deposits The effect on the RON/EUR exchange rate of the actions of the National Bank of Balance, EUR bln. Imports, % yoy (left scale) Source:(right scal NBe)R Exports, % yoy (left scale) Romania to stimulate domestic currency lending and exports through lowering of the Source: NBR policy rate once again overwhelmed the effect from strong economic performance of Monthly foreign trade balance the country. As a result, the trend of gradual RON depreciation continued in December. 40The exchange rate depreciated by0, 4 35 0,2 30 EUR billion almost 1% to 4.4847 RON per EUR by the end of the month. This is actually the lowest monthCu25rrent acco endunt exchange components a ndrate FDI, in 2013. 0 0,208 0,6 -0,2 0,154 0,102 -0,4 and Capital 05 -0,20 -0,6 -0,4 -0,6-5 -0,8 Foreign trade of Romania continued to improve in October. Major improvements were observed-0,8-10 in trade with goods, as growth of -1-15 -1 -1,2 OctONovDec JanFeb MarApr MayJun JulAug Sep ct exports of goods significantly exceeds that of imports (12.0% yoy vs 0.7% yoy, respectively). As Oca tOresult,NovDec theJanF ebbalanceMarApr Ma yJof unforeignJul tradect 2012 2013 AugSep 2012 2013 in goods in FOB-FOB terms was more than two times lower in October 2013, compared with the Balancsamee, EUR periodbln. ofImports, the % yo yprevious (left scale) year. (right scale) Exports, % yoy (left scale) More than three fourths of the export dynamics was once again accounted for by machinery andTrad etransport in goods balance (lef t scalequipment,e) Trade in serv icessupported balance (left scale) Source:Inco meNBRs balance (left scale) Current transfers balance (left scale) by food products and live animals. All the major commodity groups, except for chemical products,Curr enregisteredt account balance (rig htpositive scale) FDI (rig growthht scale) rates. As for imports of goods, the major contribution to their growth was made by a commodity categorySource: NBR, of INSSE mineral fuels, lubricants, and related materials. Foreign trade in services posted significant increases in both exports and importsCurrent acco inunt coOctober.mponent s aHowever,nd FDI, EUR billiogrowthn 0,8 of imports exceeded that of exports (64.5% yoy compared to 41.7% yoy). The balance of foreign0,6 trade in services remained positive 0,4 0,2 though, and was 55% yoy higher in the reporting month. Overall, the balance of foreign trade 0of Romania was 61.3% yoy lower at -0,2 -0,4 EUR 255 million in October. Such good performance in both foreign trade sectors continued-0,6 the improvement of the foreign trade -0,8 -1 balance from the beginning of the year. In January-October 2013, the total foreign trade balance-1,2 remained around one tenth of that OctONovDec JanFeb MarApr MayJun Jul AugSep ct registered over the same period last year. The deficit of foreign trade in goods reached EUR 2.9112012 billion, which is less2 013than half of last year’s deficit for the same period of time. At the same time, the January-October 2013 surplusTrade in ofgood foreigns balance (left scal tradee) Trinade inservices services balance (lef t wasscale) Incomes balance (left scale) Current transfers balance (left scale) almost three times larger than last year at EUR 2.3 billion. Current account balance (right scale) FDI (right scale)

Source: NBR, INSSE Headquarters Bucharest Office, Romania 123 N. Post Oak Ln., Suite 410 12Bis, Dr. Draghiescu St., Sect. 5, Houston, TX 77024 USA Bucharest , 050579 Tel: +1 (713) 6213111 Fax: +1 (713) 6214666 Tel: +40 (21) 4101000 Fax: +40 (21) 4102222 Email: [email protected] Email: [email protected] 3 GDP growth, % yoy Ukrainian Industry and Exports of Goods, and World 6,0 Steel Price Index, % yoy 50% 20% 4,0 40% 16% 2,0 30% 12% II III IV IIIIII IV 20% 8% 0,0 III III IV III III IV III III 10% 4% -2,0 0% 0% GDP growth, % yoy -10% Ukrainian Industry and Exports of Goods, -4and% World -4,06,0 Steel Price Index, % yoy -20% 50% -8% 20% -6,04,0 201400 % 2011 2012 13 16% -8,02,0 World30% Carbon Steel Price Index, left scale 12% 2009II III IV II2010IIII IV 2011 2012 2013 Industrial20% Production, 3m MA, right scale 8% -10,0,00 Export10% of goods, 3m MA, left scale 4% III III IV III III IV III III -2Source:,0 INSSE Source: MEPS,0% NBU, The Bleyzer Foundation 0% -10% -4% -4,0 -20% -8% -6,0 2010 2011 2012 13 -8,0 World Carbon Steel Price Index, left scale 2009 2010 2011 2012 2013 Industrial Production, 3m MA, right scale Indu-10,st0rial production by selected branches Export of goods, 3m MA, left scale Source: INSSE Source: MEPS, NBU, The Bleyzer Foundation 80 80 60 12 60 40 7 20 40 0 2 Industrial production by selected branches -20 20 -3 -4080 80 60 12 0 -60 -8 60 40 OctONovDec Jan FebMar AprMay JunJul Aug Sep ct7 -20 20 2012 2013 40 0 2 -40 -2Indust0 ry, right scale Food products 20 Coke and refined petroleum products Chemicals and chemical products-3 -40 -60 Basic metals Motor vehicles, trailers, 0 -60 and semi-trailers -8 OctONovDec Jan FebMar AprMay JunJul Aug Sep ct -80 -20 Source: INSSE2012 2013 2009-40 2010 2011 2012 2013 Industry, right scale Food products Coke and refined petroleum products Chemicals and chemical products -60 World Carbon Steel Price Index Basic metals Motor vehicles, trailers, World Fertilizer Price Index Consolidated budget balance and semi-trailers -80 % of GDP Source: INSSE Source: MEPS 0,5 2009 2010 2011 2012 2013 World Carbon Steel Price Index 0 World Fertilizer Price Index -0,5Consolidated budget balance % of GDP Source: MEPS -10,5 -1,5 0 -2-0,5 -2,5-1 -1,5 -3 -2Jan FebMar AprMay JunJul AugSep OctNov Dec -2,5 2012 2013 Source:-3 Ministry of Public Finance of Romania Jan FebMar AprMay JunJul AugSep OctNov Dec 2012 2013 Source: Ministry of Public Finance of Romania

Inflation indexes, growth % yoy 8 7 Inflation indexes, growth % yoy 6 8 5 7 4 6 3 5 2 4 1 3 0 2 -1 1NovNDecJan FebMar AprMay June July AugSep Oct ov -2 0 2012 2013 NovNDecJan FebMar AprMay June July AugSep Oct ov -1 CPI PPI Foods Non-foods Services -2 2012 2013 Source: INSSE CPI PPI Foods Non-foods Services Source: INSSE

Selected monetary indicators, growth % yoy 12Selected monetary indicators, growth % yoy 1012 810 6 8 4 6 2 4 Romania 2 0 0NovNDec JanFeb MarApr MayJun JulAug SepOct ov -2 NovNDec JanFeb MarApr MayJun JulAug SepOct ov -2 20122013 -4 20122013 -4 -6 Macroeconomic Situation-6 Money supply Non-government credit Money supply Non-government credit Non-n-govgoverernmennment depot depositssits January 2014 Source:Source: NB NBRR Just as in September, the foreign trade deficit was not the major factor of the current ac- MMonthlonthlyy fore foreiigngn trtradade balalancncee 4040 0,40,4 count deficit increase, as it was compensated for by the increase in the current transfers 35 35 0,20,2 3030 surplus. Moreover, the current transfers surplus increase was almost two times higher 25 0 2520 0 20 -0,2 15 -0,2 than the deficit of foreign trade at EUR 564 million. However, the income account deficit 1510 -0,4 105 -0,4 5 -0,6 expanded by EUR 669 million (24.6%) in one month, which led to a EUR 360 million 0 -0,6 0-5 -0,8 -5-10 -0,8 (60.5%) monthly increase in the current account deficit. On the positive side is the fact -10-15 -1 -15 OctONovDec JanFeb MarApr MayJun JulAug Sep ct -1 that the current account deficit as of October 31st, 2013 was 82.09% lower than on the OctO2012NovDec JanFeb MarApr Ma2yJ013un JulAug Sep ct Balanc2012e, EUR bln. Imports, % yo2y013 (left scale) (right scale) Balance, EUR bln. ExImports,ports, % % yo yoy y(lef (left scalt scale) e) same date of 2012. (right scale) Source: NBR Exports, % yoy (left scale) Inflows of foreign direct investment (FDI) in October were almost two times higher Source: NBR than the average inflows over the first nine months of the year. They were equal to EUR 319 million. This helped slightly improve the overall dynamics of FDI in 2013. Its total Current account components and FDI, EUR billion 0,8 Cu0,rre6 nt account components and FDI, EUR billion amount at EUR 1.816 billion over the first ten months of the year was 8.2% lower, while 0,4 0,80,2 0,6 0 it was 9.9% yoy lower a month ago. The share of intragroup loans dropped 6.4% and 0,-0,24 0,-0,42 -0,60 reached 26.5%. The share of equity stakes consolidated with the estimated net loss, in -0,2-0,8 -0,4-1 -0,6-1,2 turn, expanded to 73.5%. -0,8 OctONovDec JanFeb MarApr MayJun Jul AugSep ct -1 -1,2 2012 2013 OctONovDec JanFeb MarApr MayJun Jul AugSep ct The total external debt of Romania stayed almost unchanged in October compared to Trade in goods balance (left scale) Trade in services balance (left scale) In2012comes balance (left scale) Current tran2013sfers balance (left scale) September. The insignificant increases were observed in both medium- and long-term Current account balance (right scale) FDI (right scale) Trade in goods balance (left scale) Trade in services balance (left scale) exchange debt and short-term external debt. In particular, medium- and long-term exter- Source:Inco meNBR,s balanc INSSEe (left scale) Current transfers balance (left scale) nal debt inched up by 0.54% due to an increase in direct public debt, while the increase in Current account balance (right scale) FDI (right scale) short-term external debt was even lower. Total medium- and long-term external debt reachedSource: EUR NBR, INSSE 79.571 billion, which is 80.39% of the total external debt of the country. The short-term external debt totaled EUR 19.415 billion at the end of October, which is 19.61% of the total external debt of Romania. After two months of increase, Romanian foreign exchange reserves dropped 6.2% mom in November 2013. The major reason for for this was significant interest and principal payments on foreign currency public debt. Romania repaid interest and principal instalment on the IMF loan. The share of the National Bank of Romania was equal to EUR 814 million, while the share of the Min- istry of Public Finance amounted to EUR 165 million. Additionally, the country repaid the euro denominated bond issued by the Ministry of Public Finance. The total payment, including interest, amounted to EUR 1.379 billion. Taking into account changes in the foreign exchange reserve requirements of the credit institutions, the total foreign exchange reserve outflows reached EUR 3.005 billion in November. At the same time, the foreign exchange reserve inflows amounted just to EUR 857 million over the month and represented, mainly, changes in the foreign exchange reserve requirements of the credit institutions, inflows to the European Commission’s account, and inflows to the accounts of the Ministry of Public Finance. The gold stock still remained unchanged in terms of weight but its value declined by 6.2% because of the detrimental effect of the international prices of gold and reached EUR 3.052 billion. As a result, the total international reserves of Romania decreased by 6.2% in one month and were equal to EUR 35.466 billion as of November 30th, 2013. Other Developments Affecting the Investment Climate

Headquarters Bucharest Office, Romania 123 N. Post Oak Ln., Suite 410 12Bis, Dr. Draghiescu St., Sect. 5, Houston, TX 77024 USA Bucharest , 050579 Tel: +1 (713) 6213111 Fax: +1 (713) 6214666 Tel: +40 (21) 4101000 Fax: +40 (21) 4102222 Email: [email protected] Email: [email protected] 4 Headquarters Bucharest Office, Romania 123 N. Post Oak Ln., Suite 410 12Bis, Dr. Draghiescu St., Sect. 5, Houston, TX 77024 USA Bucharest , 050579 Tel: +1 (713) 6213111 Fax: +1 (713) 6214666 Tel: +40 (21) 4101000 Fax: +40 (21) 4102222 Email: [email protected] Email: [email protected]