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COFACE: Despite economic growth above potential, Romania not prepared for recession

With a 7 percent economic growth, Romania has reached a certain limit and at some point it will definitely face an economic recession it is seemingly unprepared for, Coface Romania country manager Eugen Anicescu told the Country Risk Conference on Wednesday.

"I think we have hit certain limits as far as economic growth is concerned. I think we are above potential at this point, and it is more important that we succeed in maintaining reasonable growth rates over time than advance in leaps of an amplitude we have already seen in the past. I don't want to rain on anybody's parade, but I would also listen to certain voices that advise that, considering the length of the economic growth cycle we have been through, we should ponder on whether we aren't already past the peak of the growth cycle and maybe in the next period, try to determine the moment [of a recession], because we do not have a crystal globe. Yet it is certain that we will face a recession at some point," said Anicescu.

According to data presented by the Coface Romania representative, Romanian companies do not fare better than in 2007, and as their 2016 balance sheets prove, their debt collection time is of 104 days compared to 60 days back in 2007. Also, in 2016 the companies' capitalization rate was 28 percent, compared to 35 percent in 2007.

"Basically, at this moment, Romanian companies have a negative working capital. This shows that, overall, companies have grown weaker, yet I won't say that certain businesses have not grown stronger over the years. We see that whereas in 2007 Romania's largest companies accounted for 35 percent of the economy's turnover, they are already achieving 50 percent in 2016. From my point of view, the toxicity of this phenomenon resides in the fact that it saps the potential of other companies to achieve the capitalization margin, because the economic environment is narrowing towards the top, and the pyramid sharpens. Practically, 38 percent of the companies are older than five years, so they have just entered the economy and haven't capitalized yet, they are inexperienced. Companies with no activity represent 28 percent and 45 percent are companies with negative capitalization. From this data it's obvious we are not prepared for the next recession," said Eugen Anicescu.

Coface Romania organized on Wednesday the 14th Country Risk Conference devoted to major aspects of current macroeconomic challenges and the regional business environment, with focus on Central and Eastern Europe and on Romania.


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