Brexit would affect Romania less than countries in the region

Romania will withstand shocks better than most of the countries in Central and Eastern Europe (CEE), if Brexit will happen, risk aversion of investors in short-term going to reach a maximum deterioration of 5 percent, correlated with RON’s temporary depreciation by 5 percent, Unicredit Bank report reveals.

At the same time, the medium-term impact will consist of a GDP cutting by almost 0.5 percentage points.

Unicredit Bank economists explain the low impacts on Romania on short-term by the fact that foreign investors’ exposure is reduced, only 18 percent of bonds issued locally being held by them after the first quarter. Most are EU investors and capital flows are likely to be more stable than in other regions.

Moreover, Romania’s public debt of 38.1 percent of GDP on March 31, is low compared to other countries in the region.

Financial institution estimates that the volatility in financial markets and the yields increase for high maturities can be an attractive entry point for foreign investors. Consequently, the upward pressure on Romanian bond yields could be limited.

“The low level of Romania’s current account deficit and Central Bank’s preference for stability should reduce the length of volatility episodes,” Unicredit Bank shows, noting that Romanian Leu has been a very stable currency in the region since 2012.

Over the medium term, UK’s exit from EU would affect Romania by trade, with a small direct impact, but the indirect impact on Romanian exports could be significant because Great Britain imports 54 percent from EU.

Another effect on Romania is targeting migration of the population, but Romanians represent only 1.1 percent of Britain’s immigrants.

Perhaps the greatest impact in medium-term is on EU funds, UniCredit forecasting that countries with a poor performance in absorbing funds, especiallyRomania, will suffer most.