BUCHAREST, Nov 12 (Reuters) - Romania's economy shrank less than expected on the year in July-September, but returned to contraction on the quarter as sharp austerity measures hurt households and depressed demand. Analysts said the figures boost chances that Romania's economy will shrink less than expected overall this year, closer to the International Monetary Fund's forecast of 2 percent contraction. However, the result will have little impact on interest rates. Flash estimates from the National Statistics Board showed on Friday, gross domestic product fell 2.5 percent on the year and 0.7 percent on the quarter. Analysts polled by Reuters earlier this month expected contraction of 2.6 percent on the year and 1.3 percent quarter-on-quarter.. Romania's strained economy emerged briefly from recession on the quarter in April-June, before the centrist coalition government cut all state wages by a quarter and hiked value added tax by 5 percentage points to 24 percent in July. The foreign aid-recipient economy shrank by 0.5 percent on the year in the second quarter and analysts polled by Reuters earlier this month saw the economy shrinking 2.5 percent this year. "This means this year's economic contraction will probably be lower than we expected, around the IMF's estimate of roughly 2 percent," said Nicolaie Alexandru-Chidesciuc, chief economist at ING Bank in Bucharest. " "This could justify keeping interest rates unchanged." The Bucharest government is struggling to cut spending and boost budget revenues to ensure it keeps its 20 billion euros IMF-led aid package on track. At 0729 GMT, the leu traded at 4.2905 per euro, slightly firmer from levels before the announcement. (Reporting by Luiza Ilie and Ioana Patran; Editing by Radu Marinas and Toby Chopra) Keywords: ROMANIA GDP/ (email@example.com ; +40 21 315 8320; Reuters Messaging: firstname.lastname@example.org ) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.
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