“When is this crisis going to end?” The positive scenario for Romanian market

Part 1

(for part 2, click here)

During 2005 – 2007, I was positive about Romania's future, considering the country as an almost "ideal" place to invest in. In 2007 (November 23^rd interview to "Curierul National" newspaper) I stated for the first time that part of the Real Estate prices during 2008 will go down (and almost everyone laughed). Today I have been explaining to you all the problems that exist around us. But too many people ask me: "Ok, Ilia, I understand what you mean and maybe I can also agree with you. This is who we are and we will not change any time soon. So, taking into consideration all these observations of yours, all the mistakes that you see here, when do you expect the Romanian economy and Real Estate market to exit the crisis?"

Many uncertain factors involved

This is not an easy question to reply to. The problems are very complicated, the uncertainty of the world economygrows every single day and it looks like it is going to take a while until everything will stabilize. But "Romanians are very eager to get rid of the crisis" as the media and too many people say every day. So I will try to approach the issue carefully (and realistically) and provide a reply which will be very close to the truth, as I perceive it. But keep in mind that there are also many unexpected factors. For example, if the Romanian economy starts moving and all the owners double their prices, the market will be blocked again and the economy will lose its "locomotive", the Construction and Real Estate segment.

Does "reaching the bottom" mean also "exit from crisis"?

In October 2008 (during EXPO REAL conference, Munich, Germany) I had stated that we will reach the bottom of Real Estate market during the first half of 2010. It looks like this is what will happen. But reaching the bottom does not mean that we exit from the crisis. On the contrary, there is always a serious possibility for an economy (and a country) to get blocked there and enter in a "lethal spiral" (as George Soros recently described the dangers of Greek economy). So, let us analyze together the 3 possible scenarios that can happen here in Romania: The positive, the negative and the "more realistic one" (which I consider that has the biggest % of possibilities to happen).

Positive scenario for Romania:
Exiting the crisis during: Last quarter 2010 – First quarter 2011

Possible good news (worldwide):

• USA will exit the crisis for good and the first good signs will be followed by strong sustainable growth.
• Germany, France and England will return to positive growth starting with the 3^rd quarter of 2010. Their economies will avoid turbulences and they will be soon followed by Spain and Italy.
• The banking sector's blockage will be replaced by a controlled minor expansion.
• Euro currency will remain strong, attracting new investors (who nowadays have switched to Dollar, considering it stronger and more "liquid" currency). Eurozone will become again a safe destination for investors.
• Greece will solve its basic problems and its future stability will heal the problems of several European countries too.
• Crude Oil price will not reach the 2008 peaks, remaining under 80 – 90 Dollars / barrel.

Possible good news (Romania):

• The country will take advantage of the European turn around story and the Romanian exports will boost.
• The Foreign Direct Investments will increase during the following months.
• Romania will start absorbing European Grants, covering the lack of absorption during 2007 – 2009.
• The fiscal budget will reach its targets.
• Ron will slightly devaluate, helping Romania to become more competitive (I know it does not sound nice, but an expensive Ron means that the country will have to increase its productivity and this is not easy anytime soon. You saw what happened to Greece, which does not have any currency to devaluate…)
• Romanian banks will start lending until the end of 2010.
• The Government will succeed to start several projects in the following months. These projects are stuck since years (for various reasons).
• Investments in renewable energy will be sustainable and several billions of Euro will be invested, creating a new domain of activity for tens of thousands of people.

Positive scenario. Steps to recovery:

• European economies will start recovering during the following months.
• Romania will follow them, starting with the 4^th quarter of 2010.
• Banks will open their gates to borrowers by the same period too.
• Romanian economy will "unfreeze" in the last months of the year and will start 2011 significantly stronger than today.
• The Real Estate market will rebound immediately and prices will start rising again, from November – December 2010 and especially during 2011.
• Construction market will open again, thousands of new jobs will be created and the real economy will start moving too.

Tomorrow:

The negative scenario: Second half of 2012 – First half 2013

The "more realistic scenario": Second half of 2011 – First half of 2012