Worrying message from the BNR. A wave of insolvencies follows. The first companies to disappear

According to the data of the National Bank of Romania, in the next period there will be an increase in the number of insolvencies.

“In this environment, of sharp economic deceleration, and adaptation to a global environment in which capital is more expensive, our analyzes show that we are likely to witness an increase in the number of insolvencies in the coming period, an evolution that would be in line with expectations at the European level. And which should not be surprising. Very important: it is not only here. And the analyzes of our colleagues in Western Europe show the same thing. In Germany it has already started to be seen in numbers. Also, as governments will start to restrict support schemes, the resources that can be accessed by some companies will become scarcer. The Czech Republic has already started to tighten its belt. And somehow it is normal for governments to seek to limit their interventions in the private economy, the pandemic is over/ the shocks have generally been overcome.In this context of tapering of ample support, a necessary tapering if you ask me, we expect to see an increase in insolvencies but also some increase in the non-performance rate in the banking sector. Important: we are not talking about radical changes, we are coming after a decade of continuously decreasing NPL rate, but rather normal developments, to be expected in a complicated economic environment”, said Cristian Popa, according to Agerpres.

Firms that will be taken out of the market

He mentioned that the banking sector is well prepared to face these developments: capitalized, liquid, well regulated and the BNR is a firm supervisor. As far as zombie companies are concerned, Popa believes that all over the world this type of companies will probably collapse.

“Firms that were kept alive only by very low interest rates, these ‘zombie’ firms, will be driven out of the market by higher costs. If this was their only asset in the market, then they may not be able to adapt anymore to the current conditions. I repeat, these developments are normal in such an economic environment, they do not surprise us, we are not talking about large-scale shocks, and the credit institutions are well and very well, prepared to face them”, stated Cristian Popa .

He also stated that the new assessments reconfirm the perspective of the continued decrease in the annual inflation rate over the next two years. The newest forecast assumes a slightly higher trajectory for 2024, due to the increase in indirect taxes, but also a return to the corridor in 2025.

“I made the decisions as required”

At the same time, he referred to the monetary policy, noting that “it is not easy to get out of a pro-cyclical policy” and that the BNR did not follow such a policy.

“We at the BNR did not follow such a policy, we did not run a procyclical monetary policy, we took the decisions as required: we did not go to zero/minus when inflation was low or when the pandemic came, nor to 16% when inflation appeared, as one or the other said to do, at various times. We cannot say about fiscal policy what we told you about monetary policy. And the problem is old, the seed of the problem was planted a long time ago. The problem was when the accelerator was pushed too hard! When the gas was put on the fire even though the fire was burning properly. That made us, to quote the chief economist, stretch out more than our comforter, we lived far beyond possibilities as you said. Romania’s budget deficit exceeded the 3% threshold in 9 of the last 18 years. Clarification: neither the dance nor I say that: I or you, X or Y, but Romania, through public policies based on deficits fiscal. On spending with borrowed money. Let’s not forget that in 2019 we were already in the PDE (excessive deficit procedure, no. In short: we also increased the fiscal deficit, when it was not the case, for this reason we are now forced to be pro-cyclical: to reduce the fixed deficit when the economy slows down. Exactly as the economics book says not to do. And the deficit needs to be reduced, it is imperative that it be reduced”, said Cristian Popa.

“We exaggerated”

He stated that the NBR has done what is called a coherent policy mix.

“We strengthened the monetary conditions, encouraging saving, but we left the liquidity in the market so that the banking sector still functions within the parameters, to have resources to finance the economy. I personally wrote about it, with the title “We did not exaggerate”. The title says it all . I strongly believe in everything I wrote there. We did not go with interest rates at zero or minus. But not even at 16%. – We did not make “forward guidance”https://www.dcnews.ro/”forward guidance ” not even when it was fashionable, now that it’s not, not so much. We didn’t grow the bank balance sheet exponentially, as you see with others. I mean, we didn’t do QE / Quantitative Easing. Even the few purchases of government securities were not carried out for monetary policy purposes. Of course all this helped us better face the dragon when it appeared. And we faced it, at least so far without creating a recession, and with relative exchange rate stability. We faced it and we continue to face it: We do not make “guides”, but we “orientate” saying that we are not even talking about reducing the interest rate at this moment, we must first be convinced that we have defeated inflation. Patience is needed,” said Cristian Popa.

“We will not make this mistake”

He stated that more than 50% of disinflation processes fail because of “premature celebrations”, that is, because of the too rapid reduction of interest.

“We will not make this mistake. I come back to the present: we constantly emphasize, every time, economic growth is now based on European funds, therefore on investments. There is no chance that it will be based on consumption growth. Future growth will be based on investments. The only factor of economic growth that is also non-inflationary, at least in the long term, and also helps you in the balance of payments, where the deficit is still high, is European money. We believe that the formula we adopted helped to avoid recession. But the slowdown is inevitable. We expect economic growth to decelerate visibly, significantly. One of two sets of data from the INS tells us we’re approaching economic stagnation: 0.2% annual growth, on the non-seasonally adjusted data series . We forecast the reversal of the cyclical position of the economy towards the end of next year, 4 quarters faster than we initially thought. So from too hot to a little cold, 1 year faster. Some believe that it is impossible to bring inflation down without a recession. International statistics tell us that it is not impossible, but not very likely either,” Cristian Popa said.

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