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Volatility of financial markets, most likely high during 2019, OTP Asset Management analysis says

OTP Asset Management Romania has released the market analysis “Spring-Summer Trends 2019”, the third volume presenting the retrospect of the evolution of financial markets during 2018 and the company’s expectations for the next period.

The analysis highlighted that last year ranged from synchronized growth to unbalanced growth and that a large scale economic downturn is expected, but no recession yet. “GDP growth may slow down to up to 3.5%, while the volatility of financial markets, most likely high during 2019. Estimates for the end of the year indicate values of the main international stock indices above current levels, “the report reads.

Regarding Romania, we expect a GDP growth of 3.5% in 2019. Similar to previous years, household consumption could be the main driver of economic growth.

We expect investment to grow moderately in 2019, as the positive effect of European funds absorption and pressure on companies to improve productivity could be partly offset by lower investment in the energy, telecom and financial sectors.

The current level of the NBR benchmark interest rates, together with prudent liquidity management, could remain at the same level in 2019. However, in the medium term, a modest increase in the interest rate may be necessary to keep inflation well connected to the target.

Pro-cyclical and unorthodox fiscal policies, as well as the relatively high and rising current account deficit, signal the build-up of vulnerabilities. Therefore, it is expected that the NBR will remain very vigilant,” OTP further said.

The bank also argues that there is optimism about the evolution of the RON bond funds in the coming period, given the opportunities offered by EURRON swaps.

The local capital market will remain heavily influenced by two extremely important factors. On the one hand, the projected budget deficit for 2019 will make the majority shareholder of state-owned companies demand generous dividends, again, from these companies. On the other hand, the implications of modifying the current functioning system for Pillar II of privately administered pensions are very difficult to quantify right now, but if the current form will be drastically modified, there will be negative effects in the short and medium term. Under these circumstances, it is expected that Romania’s goal of moving to emerging market status will go away indefinitely. Commercial war and populist slippages are the main threats for financial markets during 2019,” OTP analysis warned.

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