“At this point it is clear that we should expect a slowdown. For example, the IMF’s forecasts made last October indicate an entry into recession, a moderate recession, for Germany and Italy,” explained Florian Libokor, BRD’s chief economist, during the Confidex debate.

The meeting took place a few days before the press conference of the governor of the BNR. We make this clarification because many of the advanced ideas were later confirmed by Mugur Iserescu in his speech on Monday.

“If Italy should not be afraid, then Germany is the engine of the economy of the European Union. So the slowdown is visible, that’s understandable. The main problems that I see and mentioned earlier are related to price dynamics and debt dynamics. Price dynamics is a problem not so much because it is large, but because it is a phenomenon that is determined not so much by the approach of monetary policy, but by any other elements unrelated to monetary policy. And when there’s a problem in another area, it doesn’t matter which one, and you go with monetary policy trying to fix the problem, you run the risk of doing more harm than good if you’re too aggressive,” Florian said. Libokor, the economist of the head of BRD, clarified that this is his personal opinion.

According to him, Romania is not currently in recession.

Monetary policy is as effective as it is a harsh tool.

“Suppose we go with an interest rate and moderate inflation. If we go aggressively with an interest rate of up to 10%, then with one hand we give, with one hand we take. We do not earn much in the network, because the loans of the government will eventually be paid by the population, for example, through taxes or others. On the other hand, Romania borrowed to cover some fixed costs (for various reasons), but we did not put this money to work, we did not invest. But we were borrowing to cover fixed costs, the multiplier was down to zero. The only useful aspect was that you achieved social balance, but you did not multiply money, and then when you had to pay it back, due to lack of resources, you had to resort to either the lever of taxation or other levers. I see debt as a problem because at the global level the evolution is so unpleasant that unless there is an agreement on who cuts and how much, some countries will find it impossible to deal with the debt,” Libokor added.

According to him, one of the states in a “sensitive situation” is Ukraine.

Another problem is the demographic imbalance, says the economist

“Looking at China, Europe and America, out of all three, I think America is the most flexible and quick to respond, as always. China, for example, abolished birth restrictions. Europe is now in the most delicate situation. If you go beyond the conflict, there is the problem of gas, energy, which is not simple, you cannot supply all the energy that originally came from Russia. I remain of the opinion that unless a solution is found for the parties to sit down at the negotiating table, the matter cannot move forward,” said Florian Libokor.

Regarding Romania, he says that he trusts the authorities, especially the monetary and fiscal authorities, but they must do things in such a way that the population and companies understand that through the decisions they will make, they understand the existing problems and will try to solve them.

“The big challenge is the implementation of structural reforms, which are difficult to implement. It’s very simple: the result of structural reforms cannot be capitalized in a political mandate,” he said.

He argues that when you look at all the markets and all the elements that define the market, they are all down, meaning bonds, stocks and commodities.

“The only asset in excess demand is the dollar. This is because the Swiss franc is no longer a safe bet, the lesson of the past has not been forgotten. And now the dollar looks like the best solution,” said Libocor.

In other respects to trade, he thinks he is of the same opinion. The key word is diversification (markets, products, technologies), the current context demonstrates this well.

Paul Dieter Cîrlănaru, CITR CEO: Debt-to-GDP levels have risen globally and continue to rise

“If we look at global IMF data, we see that debt-to-GDP levels have increased worldwide and continue to increase. I think this increase in debt also tells us how certain measures we’re taking to protect the economy are reflected in 2020 as well. What we do at CITR is to look at the Romanian economy from the perspective of companies. We analyze the companies in a qualitative study in which, out of the total number of companies in Romania, we focus on high-impact companies with assets above 1 million euros and which account for 70% of the total turnover in Romania, but only 4% in the number of companies. In addition, we look at the health of these companies and divide between companies with healthy indicators that have the ability to finance and grow on their own, and companies that are in the restructuring zone and will need support, support, or worse, those that are in distressed or imminent bankruptcy,” said Paul Dieter Cirlenaru, CEO of CITR.

Inevitable insolvency involves companies that are in immediate need of recovery, have problems paying their debts in the short or medium term, or have too high a level of debt to finance themselves.

“There are 32,000 impact companies today. Of them, 5,971 were in the zone of imminent insolvency at the beginning of 2022. For comparison, in 2013 we talked about 6,000 companies in this sector and 29,000 impact companies. That is why we are talking about an upward trend. What seems significant to me is that from 2019 to 2021, 42% of companies that were in this situation at that time are still in existence. This means not only that we discovered at some point that the company was in trouble, but that three years later it is still there. They are used to living dangerously, but it is more interesting to watch what they do. These companies increased their turnover, so they continued to struggle, they sought to get out of that situation, but at the same time they increased their debts faster. Therefore, we have a 31% increase in turnover, but we have a 33% increase in the debt level,” he stated.

From minute 1:08:00 he explained that there are new restructuring mechanisms, a legal framework that allows for restructuring agreements with creditors while companies continue to operate, and which also provides a framework for development. Which gives struggling companies a second chance.

Andriy Chonka, CEO of Impetum Group: We see three types of recession with different causes: in China, the US and a possible recession in Europe.

To better understand the Romanian economy, we are launching a Leading Economic Indicator (LEI) for the first time in Romania. But this indicates the beginning of a recession.

“The US Leading Economic Indicator (LEI) showed that there are signs of a new recession, the signs have been there since August this year,” he said. We looked at what was happening externally and found that this metric was doing very well in Asia, Japan and the Americas. We looked at what it consists of and saw that we have most of the components in Romania. We have also seen his evolution since 1967, since he has been working, and we know all the conversations there, from every crisis they adapt, because often he acts too late, and they understand that there is something new in the economy that they did not think of, and there are actually other factors affecting the economy that we didn’t see at the time. Then we thought that we could be inspired by them to implement it in Romania as well. We have been doing this for two years. We tested and got to the point where we had data in Romania, namely in 2005, during the stage of preparation for joining the European Union. I couldn’t do more in-depth testing because there is no data. We’re releasing it today because we think it’s good timing because it signals the beginning of a recession. It seems to be precisely at the moment of the outbreak of the crisis, in June 2022,” said Andriy Chonka. “Given that this is a mathematical formula and a macroeconomic indicator, we want to bring it up for public discussion, hold round tables, invite macroeconomists, protest and, if necessary, improve it. The next period will also be a test of this indicator, a reality check. This is our contribution to a better understanding of the Romanian economy,” he said.

In the next period, the indicator will be submitted for public discussion.

We are also trying to improve the CONFIDEX study, which is constantly evolving.

“We are on its third iteration. I started it two years ago as a crisis magazine. Then we realized that we could conduct a study on the perception of Romanian managers. We are currently using the third version of CONFIDEX and are trying to make it even better. We are trying to make a more important contribution to the understanding of the Romanian economy. We want to believe that in every moment we can analyze perception and reality and thus have a complete picture of the past and the future. For this, we have the CONFIDEX tool, which tests the perceptions of Romanian managers about the past, present and future. 511 heads of Romanian companies responded to the survey of this publication,” Andrey Chonka noted.

Speaking from a presentation by the International Monetary Fund, it says that in addition to the current turmoil caused by inflation and supply chain crises, the IMF is also looking at a structural problem that stems from the past.

“They say that this very lump of excessive debt has become even worse in 2020, and that, unfortunately, in 2021, with the support measures that all the states carried out, we only pushed it. The problem is that this is becoming a real crisis, and the IMF is paying serious attention to increasing these vulnerabilities, despite all the support programs. Because these support programs are temporary. They see as part of the solution some powerful tools to prevent insolvency or even insolvency, to improve the quality of services in these areas, to professionalize everyone involved in this area, so that the problems that need to be solved are solved very quickly,” says Andriy Chonka.

However, he says there are signs of a comeback.

“We have two elements to analyze. I don’t want to say that the worst is over, there may be a moment of lull. We also looked at stock markets and their performance over the past year. The good news is that we are not at a low and we don’t know if other lows will come or not. The main stock markets of the world fell by 10-30%. On the Bucharest Stock Exchange, the BET index fell by only 14%,” he said.

You can watch the full debate here