CANDIDATE AND PREACCESSION COUNTRIES QUARTERLYec.europa.eu/economy_finance/publications/pages/... · 2017. 3. 24. · The parliament adopted a minimum wage law, which foresees an

ECFIN Unit D-1

Current update: 4 July 2008 Next update: October 2008

CCAANNDDIIDDAATTEE AANNDD PPRREE--AACCCCEESSSSIIOONN

CCOOUUNNTTRRIIEESS'' EECCOONNOOMMIIEESS QQUUAARRTTEERRLLYY

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CANDIDATE AND PRE-ACCESSION COUNTRIES' ECONOMIES QUARTERLY

***************

Contents

OVERVIEW.................................................................................................. 3

CROATIA ..................................................................................................... 5

THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA............... 9

TURKEY ..................................................................................................... 13

ALBANIA.................................................................................................... 17

BOSNIA AND HERZEGOVINA .............................................................. 21

MONTENEGRO......................................................................................... 25

SERBIA ....................................................................................................... 29

KOSOVO*................................................................................................... 33

EXPLANATORY NOTES......................................................................... 37

*as defined by UNSCR 1244

3

OVERVIEW

Recent political developments: In April the Commission signed a Stabilisation and Association Agreement (SAA) with Serbia, and another one in June with Bosnia and Herzegovina. At the NATO summit in Bucharest in April, Albania and Croatia were invited to join the alliance.

In the former Yugoslav Republic of Macedonia legislative elections took place on 1 June. Due to necessary re-runs in 12 polling stations, the final distribution of seats in the Parliament will only be determined in July.

On 11 May, legislative, provincial and municipal elections took place in Serbia. Negotiations are under way to form a government coalition, with a likely joint Democratic Party and Socialist Party coalition.

Following Kosovo's declaration of independence on 17 February 2008, so far 43 countries have recognised it, among them 20 EU Member States. On 15 June 2008, Kosovo's new Constitution entered into force.

Output and demand: In early 2008, economic performance remained robust in south-east Europe. Montenegro and Serbia posted high growth rates, with GDP growth above 8% year-on-year (Q1). In the former Yugoslav Republic of Macedonia GDP growth remained sustained (+5.2% year-on-year) and though was somewhat weaker in Croatia (+4.3%). After a slowdown in 2007, growth was more vigorous in Turkey (+6.6% Q1 year-on-year).

Labour markets: Unemployment remained relatively high and major differences across countries persisted, ranging from around 10-12% in Turkey and Montenegro to close to or even above 40% in Bosnia and Herzegovina and in Kosovo. However, available data need to be viewed with a great deal of caution as they are not always guaranteed to be fully reliable. On the basis of available information Montenegro and, to a lesser extent, Albania, are the only countries to have seen a recent decline in unemployment rates.

International transactions: Following a deterioration in 2007, current account deficits continued to worsen in the first quarter of 2008 as a result of higher trade deficits caused by commodity price increases. The current account deficit widened significantly in Croatia (to 9.6% of GDP), Serbia (to 17%), Bosnia and

Herzegovina (to 15.2%) and Montenegro (to around 46%).

In Turkey, in spite of an increased trade deficit the current account balance remained more stable, at around -5.6% of GDP.

Prices: Following a sharp increase in the last quarter 2007, inflation continued to gather pace across the Western Balkans in the first half of 2008, fed by increases in food and energy prices, which weigh more heavily in the local consumer prices basket than in EU countries. In May 2008, inflation reached 6.4% in Croatia (year-on-year), 9.5% in the former Yugoslav Republic of Macedonia, 8.2% in Bosnia and Herzegovina, 9.5% in Montenegro and 11.6% in Serbia.

Turkey's inflation increased to 10.7% year-on-year in May, the largest increase since May 2007.

Monetary and financial indicators: So far, global financial market turbulence has had a limited effect on the economies of the Western Balkans. Exchange rates vis-à-vis the euro remained stable in most of the countries, except Serbia, where the inflation targeting monetary regime implies larger exchange rate fluctuations. During the first three months of 2008, the Serbian dinar depreciated by 3.9%. By the end of June 2008 the Turkish lira was 13.3% weaker against the EUR than at the end of 2007.

General government balance: Fiscal performance in the Western Balkans in 2007 benefited from strong revenue performance. The former Yugoslav Republic of Macedonia recorded a surplus of 0.6% GDP, and Bosnia and Herzegovina a surplus of 1.3%. In Montenegro, the fiscal surplus rose to 7.4% of GDP. In Croatia, the fiscal deficit was further reduced to 1.8% while Serbia's fiscal balance recorded a slight decline to -1.9% of GDP.

In Turkey, the government missed its fiscal targets in 2007, affected partly by weak tax collection and election-related spending but more particularly by the social security deficit. The general government balance reached 1.2% of GDP.

4

European Commission, ECFIN-D-1

Candidate and potential candidate countries: Summary table

2003 2004 2005 2006 2007 2008 2009 Q4 07 Q1 0 8 Q2 0 8 Ap r 0 8 M ay 08 Jun 08

Gross domestic product (in rea l terms, a nnual % chan ge)

Croatia 5 .3 4.3 4.3 4.8 5 .6 4.5 5.0 3.7 4.3 : n.a . n .a. n.a.The form er Yugoslav Rep ublic o f Ma cedon ia 2 .9 4.1 4.1 3.9 5 .0 4.8 5.5 5.1 5.2 : n.a . n .a. n.a.

Turkey 5 .3 9.4 8.4 6.9 4 .5 4.3 4.7 3.4 6.6 : n.a . n .a. n.a.

Albania 5 .8 5.7 5.8 5.5 6 .0 : : : : : n.a . n .a. n.a.

Bosnia and Herzegovina 3 .0 6.3 3.9 6.7 6 .0 : : : : : n.a . n .a. n.a.

Montenegro 2 .5 4.4 4.2 8.6 7 .0 : : 7.4 8.1 : n.a . n .a. n.a.

Serbia 2 .5 8.4 6.2 5.7 7 .5 : : 6.9 8.2 : n.a . n .a. n.a.

Kosovo* -0 .1 3.4 2.0 3.9 4 .4 : : : : : n.a . n .a. n.a.

Unemployment (LFS, in % of workforce )

Croatia : : : : 9 .6 8.9 8.4 14.2 14.7 : 13 .9 13.2 :The form er Yugoslav Rep ublic o f Ma cedon ia 36 .7 37.2 37.3 36 .0 34 .9 3 3.3 3 1.8 34.7 34.8 : : : :

Turkey 10 .5 10.3 10.2 9.9 9 .9 1 0.0 9.8 10.1 11.6 : : : :

Albania 15 .2 14.7 14.3 13 .9 13 .4 : : 13.2 13.0 : : : :

Bosnia and Herzegovina 42 .0 43.1 44.7 44 .2 42 .9 : : 42.9 39.9 : 39 .3 : :

Montenegro 26 .0 22.3 18.5 14 .7 11 .9 : : 11.9 11.8 : 11 .5 11.4 :

Serbia 16 .0 19.5 21.8 21 .6 18 .8 : : 17.9 18.6 : 19 .4 19.1 :

Kosovo* 49 .7 39.7 41.4 44 .9 43 .0 : : : : : : : :

Current account balance (% o f GDP)

Croatia -7 .4 -5.2 -6.4 -7.9 -8 .6 -8.1 -7 .8 -8.6 -9.6 : n.a . n .a. n.a.The form er Yugoslav Rep ublic o f Ma cedon ia

-4 .1 -8.4 -2.6 -0.9 -3 .1 -4.4 -5 .3 -3.1 : : n.a . n .a. n.a.

Turkey -2 .4 -3.6 -4.6 -6.1 -5 .7 -6.4 -6 .4 -5.7 -5.6 : n.a . n .a. n.a.

Albania -6 .9 -5.7 -8.9 -6.5 -10 .5 : : : : : n.a . n .a. n.a.

Bosnia and Herzegovina -19 .4 -1 6.3 -18.0 -8.4 -13 .1 : : -13.4 -15.2 : n.a . n .a. n.a.

Montenegro -6 .8 -7.2 -8.5 -24.7 -41 .6 : : -41.6 -45.9 : n.a . n .a. n.a.

Serbia -7 .5 -1 3.4 -8.3 -9.4 -12 .4 : : -12.4 -17.0 : n.a . n .a. n.a.

Kosovo* -8 .4 -1 2.7 -12.5 -13.8 -16 .1 : : : : : n.a . n .a. n.a.

Infla tion (Consum er price in dex, an nual % ch ange)

Croatia 1 .8 2.0 3.3 3.2 2 .9 5.9 3.0 4.9 5.9 : 5 .7 6.4 :The form er Yugoslav Rep ublic o f Ma cedon ia 1 .1 -0.4 0.5 3.2 2 .3 6.0 2.7 4.9 9.5 9.9 10 .1 9.5 10 .1

Turkey 21 .6 8.6 8.2 9.6 8 .8 7.8 6.0 8.2 8.8 : 9 .7 10.7 :

Albania 2 .4 2.9 2.4 2.4 2 .9 : : 3.6 3.7 : 4 .4 4.2 :

Bosnia and Herzegovina 0 .6 0.5 4.3 6.1 1 .5 : : 4.0 6.5 : 7 .5 8.2 :

Montenegro 6 .8 2.2 2.4 3.0 4 .3 : : 7.4 8.0 : 9 .1 9.5 :

Serbia (RPI) 11 .7 9.8 17.3 12 .7 6 .8 : : 9.1 11.3 : 12 .0 11.6 :

Kosovo* 1 .2 -1.1 -1.4 0.6 4 .4 : : 10.5 11.8 : 13 .6 14.2 :

General government balance (% o f GDP)

Croatia -5 .5 -4.1 -3.8 -2.2 -1 .8 -2.1 -1 .8 : : : n.a . n .a. n.a.The form er Yugoslav Rep ublic o f Ma cedon ia -1 .1 0.0 0.2 -0.5 0 .6 -1.5 -1 .3 -2.2 : : n.a . n .a. n.a.

Turkey -11 .3 -4.5 -0.6 -0.1 -1 .2 -1.4 -0 .9 : : : n.a . n .a. n.a.

Albania -4 .5 -5.1 -3.6 -3.2 -3.4p : : : : : n.a . n .a. n.a.

Bosnia and Herzegovina 0 .7 1.6 2.4 2.9 1 .3 : : : : : n.a . n .a. n.a.

Montenegro -2 .4 -2.6 -2.3 2.7 7 .4 : : 7.4 1.5 : n.a . n .a. n.a.

Serbia -1 .1 0.9 0.7 -1.5 -1 .9 : : -2.3 0.1 : n.a . n .a. n.a.

Kosovo* 2 .1 -4.5 -3.1 2.5 7 .2 : : : : : n.a . n .a. n.a.

f : ECFIN forecast Spring 2008

* a s defined by UN SCR 1244

ECFIN Fo re cast

5

CROATIA

COMMENTS

Recent political and other developments

Further progress was made in the accession negotiations with the EU. In April, the negotiation chapters on transport and energy were opened, followed by the opening of the chapters on free movement of workers and on social policy in June.

The parliament adopted a minimum wage law, which foresees an increase of the minimum wage of 12.5% by 1 July. It concerns 7.6% of employees.

The government prepared measures to cushion the effect of commodity price shock by allegedly granting additional subsidies to the electricity company.

The government also prepared a revised 2008 budget, which foresees higher spending on transfers and subsidies. The deficit is expected to fall to 1.3% of GDP. However, this reduction is mainly due to an accounting operation, namely the exclusion of the public road maintenance company (HAC) from general government statistics.

Output and demand

In the first quarter of 2008, real GDP growth slowed to 4.3% year-on-year, down from 7% in the same quarter of the previous year. In 2007, annual average real growth was 5.6%. Growth in the first quarter was again largely driven by domestic demand. The strongest contribution to growth came from investments, which soared by 9.8% and added 2.7 percentage points to the growth rate. Private consumption growth moderated to 4.3%, from 7.1% in the first quarter of 2007. Net exports posted a strong negative contribution (2.8 percentage points), as imports grew more strongly (7% year-on-year) than exports (3.8%). In terms of value added, construction recorded the strongest growth; it accelerated to 7.7%. The services sector contributed again significantly to the strong economic performance. Recently published high

frequency indicators suggest a mixed picture of the economic performance in the second quarter of 2008. Industrial production volume growth accelerated to 6.9% year-on-year in April, up from 5% in the first quarter. But retail trade virtually stagnated in real terms.

Labour market

The officially registered unemployment rate further declined to 13.2% in May, down from 13.9% in April. In May 2007 it stood at 14.8%. Total employment grew 1.1% year-on-year in April, bringing the average employment growth in the first four months to 1.8%. This is lower than the 3.3% growth rate recorded for 2007. However, official employment data may underestimate labour market dynamics and are often due to revisions. Recent data from the labour force survey reported a decline in the unemployment rate to 9% in the second half of 2007, down from 10.5% in the second half of 2006, and an employment growth of 2.2% over the same period.

The growth of average gross wages accelerated to 7.2% year-on year-in April, up from 6.2% in March. Deflated by consumer price inflation, this translates into a real increase of 1.4% year-on-year, up from 0.4% in April 2006. On an annual average basis, wage growth was 6.6% in nominal and 2.3% in real terms in April. The corresponding growth rate in the same month a year ago were 6.3% and 3.6%, respectively. Real wage growth has thus actually declined due to higher inflation.

International transactions

According to preliminary data, the current account deficit widened significantly to 9.6% of GDP in the twelve months to March 2008, up from 8.7% in 2007. The merchandise trade deficit rose to 25.5% of GDP (up from 25.2% in 2007) while the trade with services continued to post a surplus of 16.4% of GDP which was however lower than in 2007 (16.8%). The deficit of the income balance remained at 3.1% of GDP

6

and the traditional surplus in transfers declined to 2.6% of GDP, from 2.8% in 2007.

According to data reported by the Statistical Office, merchandise exports increased by 6.2% year on year in April, when import growth soared to 19.7%. In the first four months of 2008, merchandise exports grew 6.9% year on year, while imports rose 14.4%. As a result, the merchandise trade deficit increased by more than 20% year-on-year to around 9.4% of projected 2008 GDP. In the same period in 2007, the trade deficit stood at 8.5% of GDP.

The net inflow of FDI stood at 7.7% of GDP in the twelve months to March (compared to 9.1% in 2007), and "financed" a large share of the current account deficit during this period.

At end April, official reserves of the Croatian National Bank stood at a comfortable level of EUR 9,929 million, reflecting a nominal increase of around 4.6% compared to April 2007. They were equivalent to slightly above 5 months of imports of goods and services. External debt continued to grow to EUR 34,361 million by end-April, or to around 83% of projected 2008 GDP. Both the corporate and the domestic banking sector contributed to the growth of external debt in the first four months, while the government sector reduced its foreign liabilities.

Prices

End of period inflation increased markedly to a seven year high of 6.4% in May, up from 5.7% a month before. This was mostly due to higher prices for food and energy. The recent acceleration brought annual average inflation to 4.6%, much higher than the rate of 2.9% recorded in 2007.

Monetary and financial indicators

Monetary policy continued to be geared at maintaining price stability. The growth of M4 slightly lowered to 13.8%, down from an average growth of 14.3% in the first quarter. Annual domestic credit growth decelerated to around 11% in April, down from 15% in December 2007, as lending to both the corporate and the private household sector moderated.

Average three months money market interest rates stood at 6.4% in May, slightly lower than in the month before.

The exchange rate of the Kuna vis-à-vis the euro remained stable. During the second quarter, it appreciated by a small rate of 0.4%, which compares to an appreciation of 0.9% in the same period in 2007. In nominal effective terms, the Kuna appreciated by 6% in the twelve months to April 2008.

The Zagreb stock exchange index performed rather volatile and lost around 14% during the second quarter of 2008.

General government finance

According to the fiscal notification submitted by Croatia to the European Commission in April, the general government deficit as defined under ESA 95 stood at 1.6% of GDP in 2007, down from 2.4% in 2006. This was in line with the revised budget plan. However, a number of quasi-fiscal operations remained unrecorded in 2007, in particular pension debt repayments amounting to 1.2% of GDP. According to Eurostat, those payments need to be recorded as current expenditure, which would raise total spending and the size of the deficit accordingly. In sum, fiscal policy has been more expansionary than the headline figure suggests. The 2008 budget was adopted in March 2008. It foresees an increase in total spending and revenues of round 7% and a budget deficit of 1.6% as in 2007%, in line with the medium-term fiscal framework as outlined in the 2007 Pre-Accession Economic Programme. The 2008 budget foresees strong growth in current spending, while public investments are to be reduced by 8.6%. Revenue is expected to benefit from strong collection of VAT and income taxes. A revised budget 2008 is likely to be adopted in July.

The 2008 fiscal notification reports the general government debt at 37.7% of GDP at end-2007, down from 40.8% a year before. In the first quarter, the stock of general government debt further decreased to around 34.5% of expected 2008 GDP. An adjustment made for the stock of issued state guarantees and the debt of the State Development Bank (HBOR) would increase the stock of debt by around 9% percentage points of GDP.

7

TABLE


CROATIA

ECFIN Forecast

2003 2004 2005 2006 2007 2008 2009 Q4 07 Q1 08 Q2 08 Apr 08 May 08 Jun 08

1 Output and demand

Industrial confidence 1.1 Balance N.A. N.A. N.A. N.A. N.A. : : : : : : : :

Industrial production 1.2 Ann. % ch 4.0 3.6 5.1 4.5 5.6 : : 3.1 4.8 : 6.9 -2.1 :

Gross domestic product 1.3 Ann. % ch 5.3 4.3 4.3 4.8 5.6 4.5 5.0 3.7 4.3 : N.A. N.A. N.A.

Consumer confidence 1.4 Balance N.A. N.A. N.A. N.A. N.A. : : : : : : : :

Private consumption 1.5 Ann. % ch 4.6 4.8 3.4 3.5 6.2 3.5 4.0 5.0 4.3 : N.A. N.A. N.A.

Gross fixed capital formation 1.6 Ann. % ch 24.7 5.0 4.9 10.9 6.5 6.5 7.0 4.0 9.8 : N.A. N.A. N.A.

Change in stocks 1.7 % of GDP 2.5 2.5 2.9 2.9 2.8 : : 2.8 3.2 : N.A. N.A. N.A.

2 Labour market

Unemployment 2.1 % : : : : 9.6 8.9 8.4 14.2 14.7 : 13.9 13.2 :

Employment 2.2 Ann. % ch : : : : : 1.0 1.5 3.4 1.8 : 1.1 1.1 :

Wages 2.3 Ann. % ch 4.8 6.4 4.4 6.2 6.2 7.5 6.5 6.4 7.5 : 7.2 : :

3 International transactions

Exports of goods 3.1 Ann. % ch 7.6 17.3 7.9 16.1 8.8 : : 3.6 : : 8.6 0.3 :

Imports of goods 3.2 Ann. % ch 13.9 5.1 9.1 12.9 11.0 : : 11.4 : : 20.5 1.6 :

Trade balance 3.3 % of GDP -26.6 -23.4 -24.0 -24.4 -25.2 -24.5 -24.7 -25.2 -25.5 : N.A. N.A. N.A.

Exports goods and services 3.4 % of GDP 47.1 47.5 47.1 47.9 47.7 : : 47.7 47.2 : N.A. N.A. N.A.

Imports goods and services 3.5 % of GDP 57.9 56.4 55.5 56.8 56.3 : : 56.3 56.4 : N.A. N.A. N.A.

Current account balance 3.6 % of GDP -7.4 -5.2 -6.4 -7.9 -8.6 -8.1 -7.8 -8.6 -9.6 : N.A. N.A. N.A.

Direct investment (FDI, net) 3.7 % of GDP 6.4 2.1 3.9 7.5 9.1 : : 9.1 : : N.A. N.A. N.A.

4 Prices

CPI 4.1 Ann. % ch 1.8 2.0 3.3 3.2 2.9 5.9 3.0 4.9 5.9 : 5.7 6.4 :

GDP Deflator 4.2 Ann. % ch 3.9 3.9 3.2 3.4 4.0 5.1 2.6 5.4 6.4 : : : :

Producer prices 4.3 Ann. % ch 1.9 3.5 3.0 2.9 3.4 : : 5.4 7.5 : 7.7 8.7 :

Import prices 4.4 Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : : : : : :

5 Monetary and financial indicators

Interest rate (3 months) 5.1 % p.a. 5.42 7.32 6.21 4.46 5.66 : : 7.05 7.20 6.41 6.43 6.40 6.41

Bond yield 5.2 % p.a. N.A. N.A. N.A. N.A. N.A. : : : : : : : :

Stock markets 5.3 Index 1,129 1,284 1,920 2,771 4,673 : : 5,007 4,192 3,789 3,793 3,988 3,588

M4 5.4 Ann. % ch 11.4 8.2 9.6 14.3 17.9 : : 15.7 14.3 : 13.8 12.3 :

Exchange rate HRK/EUR 5.5 Value 7.6 7.5 7.4 7.3 7.3 : : 7.33 7.29 7.26 7.26 7.25 7.25

Nominal eff. exchange rate 5.6 Index 95.0 91.7 90.4 89.3 87.3 : : 85.84 84.60 : 83.12 : :

6 Government balance and debt

General government balance 6.1 % of GDP -5.5 -4.1 -3.8 -2.2 -1.8 -2.1 -1.8 : : : N.A. N.A. N.A.

General government debt 6.2 % of GDP 40.9 43.3 43.7 40.8 38.7 36.5 35.7 : : : N.A. N.A. N.A.

f: ECFIN forecast Spring 2008

8

CHARTS


CROATIA

GDP growth

0

2

4

6

2004 2005 2006 2007 2008

% year-on-year

Unemployment

13

15

17

19

21

2004 2005 2006 2007 2008

% of labour force

1-year moving average

Current account balance

-12

-10

-8

-6

-4

-2

0

2004 2005 2006 2007 2008

Annual movingaverage, % of GDP

Inflation

0

1

2

3

4

5

6

2004 2005 2006 2007 2008

CPI, % annual average

General government balance

-4.1-3.8

-2.2-1.8

-6

-4

-2

0

2004 2005 2006 2007 2008

% of GDPExchange rates

6.9

7.1

7.3

7.5

7.7

2004 2005 2006 2007 200882

86

89

93

96Lhs: Nom. HRK/EUR Rhs: REER

Index 1995=100

9

THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA

COMMENTS


On 21 June, parliament held its first session after the elections from 1 June. Due to necessary re-runs in 12 polling stations, the final distribution of seats will only be determined in early July.

The international business magazine Forbes upgraded the countries' business ranking from the 82nd place in 2007 to the 50th place in 2008. The main reasons for the upgrade were improvements in the freedom of trade and monetary transactions, while investment protection and anti-corruption still require further efforts.

Output and demand

Economic growth remained relatively strong in the 1st quarter of 2008, increasing 5.2%, compared to 6.7% the year before. Like in previous quarters, the main contribution to growth came from trade, while growth of agricultural output remained lower than overall growth. Construction performed significantly better than in previous quarters. In terms of expenditure categories, the acceleration in economic activity was based on stronger domestic demand. In particular, private investment seems to have improved significantly.

Industrial production, which accounts for some 20% of total value added, accelerated in May by 17.6% compared to the same month a year before. The largest contributions to the increase came from the manufacturing sector. During the first five months of 2008, growth of industrial output accelerated by nearly 9% compared to the same period a year before, reflecting strong growth in machinery production.

Labour market

The labour market situation continued to improve. In the first quarter of 2008,

employment increased by 2% compared to the year before, while the number of unemployed dropped by 1%. In absolute terms, the number of unemployed declined, from 323 thousand on average in the first quarter of 2007 to 319 thousand in 2008. As a result, the quarterly unemployment rate declined from 35.8% in the first quarter of 2007 to 34.8% in 2007. About 20% of the unemployed are between 15-24 years old. According to the labour force survey, the unemployment rate in this age group dropped to 58.4% in the first quarter of 2008, compared to 59.4% a year before.

Nominal wage growth continued to accelerate by 8.7% in the first quarter of 2008, compared to 9.1% in the fourth quarter. Overall, the increase in nominal wages was in line with consumer price inflation during that period.


After a rather favourable performance during the first three quarters of 2007, a marked increase in imports and less buoyant private transfers brought the until mid-2007 largely balanced current account to a year-end deficit of nearly 3% of GDP. Inflows of net private transfers continue to amount to nearly 18% of GDP, and are thus of a similar size as the trade deficit, which amounted to 21% of GDP in 2007. Inflows of FDI came down to about 4.3% of GDP, compared to 6.8% of GDP in 2006. However, a large part of this inflow in 2006 had been related to the privatisation of the electricity distribution company ESM to a foreign investor. When correcting for this one-off effect, FDI inflows were significantly higher than in the past.

Exports of goods increased by 28% in euro terms compared to an increase of 16% the year before. Nominal imports of goods rose by 24%, compared to 17% in 2006. The main factor for this strong increase in exports was stronger trade in iron and steel, construction materials and textiles.

10

At the end of 2007, official reserve assets of the National Bank stood at a level of EUR 1.5 billion, equivalent to more than 5 months of imports of goods and services.

Prices

Consumer price inflation started to rise markedly at the end of 2007, from around 1-2% during the first 3 quarters of 2007 to close to 10% in the last quarter. The main reason for this strong rise was sharp increases in food prices, reflecting unfavourable weather conditions and demand from abroad, but also rapidly increasing costs for energy and housing. Overall, annual average inflation was 2.3% in 2007.

During the first half of 2008 inflation continued to remain high, at 9.7%, compared to 1% a year before.


Monetary conditions remained relatively favourable. Average weighted nominal lending rates declined from 10.7% end of 2006 to 9.9% end of 2007. During the first five months of 2008, lending rates continued to decline slightly, to 9.6%. Interest rates on deposits came down from 5.6% in December 2005 to 4.4% in December 2006, but rose again to 5.3% in December 2007 and 5.7% by May 2008. Credit growth to the private sector was around 25% in 2006 and continued to accelerate to some 33% by end-2007. In the first five months of 2008, the strong increase of credit continued, although the overall credit-to-GDP level is still relatively low. Year-on-year growth of M4 accelerated from 26% in the first quarter of 2007 to some 30% in the second and third quarter. However, in the fourth quarter of 2007 and the first quarter of 2008, monetary expansion decelerated to some 28%.

The exchange rate of the Denar has remained largely unchanged against the euro on a level of 61.2 MKD/EUR. The National Bank intends to maintain its current informal peg vis-à-vis the euro.

Foreign exchange reserves amounted to EUR 1.5 billion by mid-2008, which corresponds to more than 5 months of imports. Important reasons for the rapid increase in reserves were the inflow from the ESM privatisation proceeds (about 5% of GDP) in 2006 and continued foreign

exchange inflows through cash exchange offices.

By end March 2008, the gross external debt amounted to 50% of GDP, on the basis of a new methodology of measuring this aggregate.


So far, the central government accounts registered a significant surplus during the first quarter of 2008, reflecting a strong revenue performance, while expenditures remained below targets. In 2007, the general government accounts had registered a surplus of 0.6% of GDP, compared to a deficit of 0.5% the year before. The original budget for 2007 had envisaged a deficit of 1% of GDP. The main reason for the better than expected performance in 2007 was higher tax revenues, reflecting strong economic growth but also improvements in the efficiency of tax collection. Towards the end of the year, the government had increased spending for social and labour market related purposes and construction and renovation activities (amounting to about ¼% of GDP). The budget proposal for 2008 envisages a deficit of 1.5% of GDP.

The general government debt ratio declined from 42% of GDP at the end of 2006 to some 26% at the end 2007. This sharp decline is largely a result of early debt repayments, mainly to Paris club creditors, the IMF, the World Bank and the EIB.

11

TABLE European Commission, ECFIN-D-1

The former Yugoslav Republic of Macedonia

ECFIN Forecast

2003 2004 2005 2006 2007 2008 2009 Q4 07 Q1 08 Q2 08 Apr 08 May 08 Jun 08

1 Output and demand

Industrial confidence 1.1 Balance N.A. N.A. N.A. N.A. N.A. : : : : : : : :

Industrial production 1.2 Ann. % ch N.A. -12.0 7.2 2.3 4.1 : : 6.2 6.4 : 6.2 17.6 :

Gross domestic product 1.3 Ann. % ch 2.9 4.1 4.1 3.9 5.0 4.8 5.5 5.1 5.2 : N.A. N.A. N.A.

Consumer confidence 1.4 Balance N.A. N.A. N.A. N.A. N.A. : : : : : : : :

Private consumption 1.5 Ann. % ch -1.5 8.0 5.7 6.0 5.0f 5.0 5.0 : : : N.A. N.A. N.A.

Gross fixed capital formation 1.6 Ann. % ch 1.1 10.9 -5.4 11.6 11.6f 10.8 11.4 : : : N.A. N.A. N.A.

Change in stocks 1.7 % of GDP 3.2 3.6 3.7 3.5 : : : : : : N.A. N.A. N.A.

2 Labour market

Unemployment 2.1 % 36.7 37.2 37.3 36.0 34.9 33.3 31.8 34.7 34.8 : : : :

Employment 2.2 Ann. % ch -2.9 -4.1 4.3 4.6 3.5 3.3 3.8 2.6 3.7 : : : :

Wages 2.3 Ann. % ch 4.8 4.0 2.7 8.0 4.8 : : 9.1 8.7 : : : :


Exports of goods 3.1 Ann. % ch 22.5 11.8 22.2 15.8 28.3 : : 24.0 9.5 : : : :

Imports of goods 3.2 Ann. % ch 15.6 15.5 10.7 16.9 23.6 : : 34.2 27.6 : : : :

Trade balance 3.3 % of GDP -18.3 -21.1 -18.4 -20.2 -21.2 -20.8 -21.6 -21.2 : : N.A. N.A. N.A.

Exports goods and services 3.4 % of GDP 36.3 38.7 43.2 47.2 : : : : : : N.A. N.A. N.A.

Imports goods and services 3.5 % of GDP 54.7 60.3 62.1 67.0 : : : : : : N.A. N.A. N.A.

Current account balance 3.6 % of GDP -4.1 -8.4 -2.6 -0.9 -3.1 -4.4 -5.3 -3.1 : : N.A. N.A. N.A.

Direct investment (FDI, net) 3.7 % of GDP 2.4 6.0 1.6 6.8 4.3 : : 4.3 : : N.A. N.A. N.A.

4 Prices

CPI 4.1 Ann. % ch 1.1 -0.4 0.5 3.2 2.3 6.0 2.7 4.9 9.5 9.9 10.1 9.5 10.1

GDP Deflator 4.2 Ann. % ch 0.3 1.3 3.8 3.8 2.1f 6.4 2.9 9.0 : : : : :

Producer prices 4.3 Ann. % ch -0.2 1.2 3.2 4.5 1.6 : : 4.1 10.5 : 10.7 14.4 :

Import prices 4.4 Ann. % ch : : : : : : : : : : : : :


Interest rate (3 months) 5.1 % p.a. : 8.49 9.95 6.40 5.60 : : 5.12 : : : : :

Bond yield 5.2 % p.a. N.A. N.A. N.A. N.A. N.A. : : : : : : : :

Stock markets 5.3 Index 774 911 1,930 3,219 6,971 : : 8,068 6,996 5,651 5,928 5,804 5,220

M4 5.4 Ann. % ch 16.0 16.3 15.1 10.9 28.4 : : 28.0 27.5 : 23.4 22.9 :

Exchange rate MKD/EUR 5.5 Value 61.26 61.32 61.30 61.19 61.18 : : 61.21 : : : : :

Nominal eff. exchange rate 5.6 Index N.A. N.A. N.A. N.A. N.A. : : : : : : : :


General government balance 6.1 % of GDP -1.1 0.0 0.2 -0.5 0.6 -1.5 -1.3 -2.2 : : N.A. N.A. N.A.

General government debt 6.2 % of GDP 45.0 43.8 48.5 41.5 27.0f 22.7 21.3 : : : N.A. N.A. N.A.f: ECFIN forecast Spring 2008

12

CHARTS


The former Yugoslav Republic of Macedonia

GDP growth

0

2

4

6

8

2004 2005 2006 2007 2008

% year-on-year

Unemployment

32

34

36

38

40

2004 2005 2006 2007 2008

% of labour force


-12

-8

-4

0

2004 2005 2006 2007 2008

Annual moving average,% of GDP

Inflation

-2

0

2

4

6

8

10

2004 2005 2006 2007 2008

CPI, % year-on-year


0.0

0.6

-0.5

0.2

-1

-0.5

0

0.5

1

2004 2005 2006 2007 2008

% of GDP

Exchange rates

50

55

60

65

70

2004 2005 2006 2007 200886

90

94

98

102

106

110

Lhs: Nom. MKD/EUR Rhs: REER

Index 1995=100

13

TURKEY

COMMENTS


Political uncertainties persist after a lawsuit was initiated to ban the governing party (AKP). The Constitutional Court's decision on its alleged anti-secularism is widely expected by late August 2008. Additionally, uncertainties regarding the government's economic policies have increased due to the delay of the decision on a successor programme with the IMF. The three year Stand-By Arrangement with the IMF was successfully completed in May.

In early May the authorities announced a new medium term fiscal framework progressively reducing the primary deficit target down to 2.4% in 2012 and the growth public debt stock to 30% of GDP in 2012 (from 39% in end 2007). The fiscal space gained through a reduction in debt service is to be used to finance three important policy initiatives: employment package and social security reform, South Anatolian Project (mainly infrastructure investment) and decentralisation in favour of municipalities.

Output and demand

Economic performance recovered in the beginning of 2008 after a slowdown in the second half of 2007, despite increased uncertainties, stemming from both global financial turbulence and domestic political uncertainty. Economic growth reached 6.6% year-on-year in the first quarter, with a strong contribution by the private sector demand (the increase in consumption was 7.1% and in investments 11.3% year-on-year). The main contributors to the growth were the consumption of transport and communication services and investments in machinery and equipment. The expenditure on food and clothing increased strongly as well. The public sector performance remained weaker, with a decrease in public investments. Net exports contributed negatively to the real growth, despite a higher growth in exports than in imports (12.2% and 11.9% year-on-year, respectively).

In terms of supply, the manufacturing sector contributed strongly (up 7%) and the growth in the agricultural sector turned positive (5.6%) after a decrease in 2007. The services sector growth was strong as well. Capacity utilisation in the manufacturing sector increased in March-May, reaching 82.4%, still lower than in May 2007.

The strong performance in the beginning of the year was followed by a decline in the business confidence in the second quarter of 2008, affected by domestic political uncertainties. The business confidence outlook fell negative in June, for the first time since 2003. The consumer confidence dropped even more significantly, deteriorating by 20% compared to end-2007.

Labour market

Labour market conditions remained challenging. The share of inactivity remained high (53.3%, the three-months average of February-April 2008), after a highest peak (54.3%) in the recent three years in January.

The number of employed remained below the level of 2007, despite a 0.5% growth (year-on-year) in February-April. It increased in the agricultural sector (+4.2%, quarter-on-quarter) and in the services sector (1.4%). The unemployment ratio remained at 10.7%, slightly higher than one year ago.

Wages in the manufacturing sector (per production hour worked) decreased in the first quarter (quarter-on-quarter). Compared to the first quarter of 2007, they increased by 8.9%.


External balances deteriorated in the beginning of 2008, despite a strong exports performance. The growth in merchandise exports (21.5%, year-on-year, in euro terms) remained higher than the growth in imports (21%) in the first four months of 2008. The trade deficit increased by almost 20% (January-April, year-on-year, in

14

EUR terms) leading to an increase in the current account deficit by over 17% (year-on-year).

The structure of capital inflows changed in the beginning of 2008 compared to one year earlier. Net foreign direct investment inflows halved and were to a large extent offset by net portfolio investment outflows (+28% and -20% of the current account deficit respectively). Other net investment inflows, mainly long-term loans to the private sector, covered 88% of the current account deficit. Since the current account deficit rose faster than net capital inflows, reserve assets fell slightly.

Prices

Consumer price inflation continued to accelerate, reaching 10.7% in May 2008, up from 6.9% year-on-year in August 2007. The main contributors to the inflation acceleration were food and oil prices, affected by the developments in the global markets.

The increase in electricity tariffs in January continues to affect annual inflation, raising the total contribution of housing costs to the total inflation to 2.5 percentage points. In July 2008, another hike in tariffs is foreseen. In parallel, price pressures in the other product categories strengthened, leading to a fast acceleration in the core inflation (excluding unprocessed food and energy, to 9.8%, up from 7.2% in February). Price increases were most notable in the categories of clothing and footwear, hotels and restaurants, and recreation and culture.


Persistently high and increasing global food and energy prices led the central bank and the government to revise the jointly determined inflation targets for 2009–2010 in June. The new inflation targets are 7.5% and 6.5% for 2009 and 2010, respectively, and 5.5% for 2011. The target for 2008 was maintained at 4% merely for accountability purposes. The medium-term inflation target was kept at 4%.

In order to avoid potential second-round effects of higher inflation, the central bank raised the key policy rate twice in the second quarter, by a cumulative one percentage point to 16.25%. The rise of policy rates and the volatility in the financial markets increased money market interest rates. Money market deposit rates increased significantly (2-3 percentage points for

different maturities, compared to end-March), stabilising somewhat at a higher level in the second half of the June.

Inflation developments and political uncertainties hindered a reversal of the sharp depreciation of the lira. In end-June the lira remained 13.3% weaker vis-à-vis the euro than in late 2007 (at 1.93 TRL/EUR). In parallel, the government benchmark bond yields continued to increase, reaching 21-23% for different maturities. The bond yields are close to 10 percentage points higher than inflation rates. The main stock exchange index (ISE-100) fell significantly from end-2007, despite a temporary surge upwards in April. In end-June the closing values were 5.8% higher (in EUR terms) than in end-March.

The non-financial sector credit growth continued to increase, albeit from low levels, reaching growth rates comparable to the beginning of 2007 (38% year-on-year in May 2008). The growth of consumer loans peaked in March (at 48.5%), declining to 46% in May.


The government missed its fiscal targets for 2007, mainly due to the high social security deficit. The primary budget surplus amounted to 4.0% of GDP (2008 fiscal notification, ESA95 methodology), and the general budget deficit was 1.2% of GDP (after a significant GDP revision in March 2008).

In January-May 2008 cash-based fiscal balances improved. More efficient tax collection led to higher tax revenues while the increase of expenditures remained limited. Significantly lower interest expenditures led to the smaller budget deficit (38% lower than in January-April 2007). However, the primary budget surplus decreased. The government targets a consolidated govern-ment primary surplus of 3.5% of GDP for 2008. The new target is determined in the new Medium-Term Fiscal Framework (MTFF), adopted in May 2008. The overall general government deficit is projected to remain below 1.7% of GDP over the 5-year period. The general government gross debt decreased in 2007 to 38.8% of GDP, down from 46.1% in 2006 (the ratios decreased significantly after the GDP revision in March 2008). In the first quarter of 2008 the gross public debt increased by 6%.

15

TABLE


ECFIN Forecast

2003 2004 2005 2006 2007 2008 2009 Q4 07 Q1 08 Q2 08 Apr 08 May 08 Jun 08

1 Output and demand

Industrial confidence 1.1 Balance 104.1 106.8 102.8 102.4 110.8 : : 102.7 104.6 100.7 103.2 100.7 98.3

Industrial production 1.2 Ann. % ch 8.7 9.8 5.4 5.8 5.4 : : 5.1 6.9 : 6.3 : :

Gross domestic product 1.3Ann. % ch 5.3 9.4 8.4 6.9 4.5 4.3 4.7 3.4 6.6 : N.A. N.A. N.A.

Consumer confidence 1.4 Balance N.A. 106.7 100.1 95.6 94.4 : : 94.2 87.2 : 76.2 75.4 :

Private consumption 1.5Ann. % ch 9.2 10.2 7.5 4.6 3.8 4.8 5.1 1.9 7.1 : N.A. N.A. N.A.

Gross fixed capital formation 1.6 Ann. % ch 14.2 28.4 17.4 13.3 3.3 7.0 7.1 7.2 9.5 : N.A. N.A. N.A.

Change in stocks 1.7% of GDP 0.6 -1.0 -1.0 -0.2 0.7 : : 0.7 0.6 : N.A. N.A. N.A.

2 Labour market

Unemployment 2.1 % 10.5 10.3 10.2 9.9 9.9 10.0 9.8 10.1 11.6 : : : :

Employment 2.2 Ann. % ch -0.8 2.0 1.7 -0.4 -3.6 1.3 1.4 -1.7 0.5 : : : :

Wages 2.3 Ann. % ch 23.0 13.4 12.2 11.5 9.5 9.8 7.5 9.9 8.9 : : : :


Exports of goods 3.1 Ann. % ch 9.5 21.8 16.6 14.8 14.8 : : 14.2 25.2 : 17.5 18.5 :

Imports of goods 3.2 Ann. % ch 12.4 28.5 20.1 17.7 11.6 : : 16.1 22.1 : 18.7 12.0 :

Trade balance 3.3 % of GDP -4.4 -5.8 -6.9 -7.8 -7.1 -9.7 -10.1 -7.1 -7.0 : N.A. N.A. N.A.

Exports goods and services 3.4% of GDP 23.0 23.6 21.9 22.7 21.9 : : 21.9 21.9 : N.A. N.A. N.A.

Imports goods and services 3.5 % of GDP 24.0 26.2 25.4 27.6 27.0 : : 27.0 27.0 : N.A. N.A. N.A.

Current account balance 3.6% of GDP -2.4 -3.6 -4.6 -6.1 -5.7 -6.4 -6.4 -5.7 -5.6 : N.A. N.A. N.A.

Direct investment (FDI, net) 3.7 % of GDP 0.4 0.5 1.9 3.6 3.0 : : 3.0 2.2 : N.A. N.A. N.A.

4 Prices

CPI 4.1 Ann. % ch 21.6 8.6 8.2 9.6 8.8 7.8 6.0 8.2 8.8 : 9.7 10.7 :

GDP Deflator 4.2 Ann. % ch 23.3 12.4 7.1 9.3 8.1 6.5 5.9 0.8 7.0 : : : :

Producer prices 4.3 Ann. % ch 22.7 14.6 5.9 9.3 6.3 : : 5.3 8.4 : 14.6 16.5 :

Import prices 4.4 Ann. % ch : : : : : : : : : : : : :


Interest rate (3 months) 5.1 % p.a. 40.49 24.29 16.74 18.07 18.85 : : 17.38 16.72 17.12 16.51 16.86 18.00

Bond yield 5.2 % p.a. : : : : 18.13 : : 16.46 17.03 19.94 18.67 19.69 21.48

Stock markets 5.3 Index 12,312 19,899 29,353 39,867 48,270 : : 55,256 44,931 40,688 42,217 41,537 38,311

M3 5.4Ann. % ch 31.9 40.9 30.9 32.5 17.7 : : 20.2 24.2 : 26.2 21.1 :

Exchange rate TRY/EUR 5.5 Value 1.69 1.77 1.67 1.80 1.8 : : 1.7 1.81 1.97 2.05 1.94 1.92

Nominal eff. exchange rate 5.6Index 27.54 26.81 28.11 26.18 26.73 : : 27.99 27.11 : : : :


General government balance 6.1 % of GDP -11.3 -4.5 -0.6 -0.1 -1.2 -1.4 -0.9 : : : N.A. N.A. N.A.

General government debt 6.2 % of GDP 85.1 59.2 52.3 46.1 38.8 32.9 28.0 : : : N.A. N.A. N.A.f: ECFIN forecast Spring 2008

TURKEY

16

CHARTS


TURKEY

GDP growth

0

3

6

9

12

15

2004 2005 2006 2007 2008

% year-on-year

Unemployment

8

9

10

11

12

2004 2005 2006 2007 2008

% of labour force

4-quarters moving average


-8

-6

-4

-2

0

2004 2005 2006 2007 2008

Annual moving average, % of GDP

Inflation

3

6

9

12

15

2004 2005 2006 2007 2008

CPI, % year-on-year


#N/A

-1.2-0.1-0.6

-4.5

-5

-4

-3

-2

-1

0

2004 2005 2006 2007 2008

% of GDP

Source: Fiscal Notification

Exchange rates

1

1.5

2

2004 2005 2006 2007 200880

120

160Lhs: Nom. TRY/EUR Rhs: REER

Index 2003=100

Note: New Turkish Lira introduced on 01.01.2005(1 new TL = 1,000,000 TRL)

17

ALBANIA

COMMENTS


In the summit in Bucharest in April, NATO invited Albania (together with Croatia) to join the alliance. The invitation is expected to support the on-going transition process in Albania.

The European Commission and the Albanian authorities held their annual dialogue on economic and financial issues in Tirana in April. They discussed Albanian progress in establishing a functioning market economy and in strengthening economic competitiveness.

The IMF completed its Article IV consultation and the fifth PRGF/EFF programme review mission in Albania in May. The discussions focused on fiscal consolidation and restructuring of the state-owned power corporation KESH.

In June the government submitted a report on the recent progress in complying with the Copenhagen criteria to the European Commission. The report serves as a contribution to the Commission's Progress Report 2008 on Albania that will be published in November 2008.

In June the tender for purchasing 85% of the shares of the oil refinery ARMO was concluded, the winner a US-Swiss consortium is expected to pay EUR 125mn for the stake. As regards the privatisation of up to 76% of the shares of the power corporation KESH distribution division, four companies passed a pre-selection procedure in order to participate in a tender.

Output and demand

Economic activity increased significantly in 2007: preliminary estimates indicate a 6% growth of GDP in real terms (up from 5.5% in 2006). The services sector continued to increase at a fast pace while the expansion of the construction sector decelerated due to a limited number of issued construction permits. The industry sector growth accelerated, led by a significant increase in the mining sector. The growth of the manufacturing sector decelerated.

In the first quarter of 2008 economic activity decreased. The sales index declined compared to

end-2007 due to decreased sales in the services and the construction sector. Retail trade continued to increase, pointing to a continuously strong consumption.

Labour market

Labour market conditions improved somewhat in end-2007 and in the first quarter of 2008. After shrinking for three consecutive quarters, the labour force increased (0.4%, quarter-on-quarter) in end-2007, mainly on account of an increasing number of workers in the non-agricultural private sector. The number of unemployed decreased to the lowest level of the recent years (by -4.7% year-on-year), reducing the unemployment rate to 13% in the first quarter of 2008.

The number of unemployed receiving unemployment benefits continued to decrease gradually (to 6.7% of the total number of unemployed in end-2007). Average wages in the public sector increased slightly in the first quarter (0.4% quarter-on-quarter).


External balances deteriorated in end-2007, reversing somewhat in the beginning of 2008. The current account deficit increased, amounting to close to 11% of GDP in 2007. The merchandise trade balance deteriorated sharply in end-2007, resulting in a trade deficit of 26.4% of GDP in 2007.

A relatively extensive deterioration resulted from a sharp increase in imports (14.5%, quarter-on-quarter, or 28.8%, year-on-year, in euro terms in end-2007). In the first quarter of 2008 imports declined somewhat, nevertheless remaining by 18% higher than in the beginning of 2007. In parallel, exports broadly maintained the level of the third quarter of 2007, though with significantly lower annual growth rates (down to 12.6% in euro terms in the beginning of 2008). The services balance followed a seasonal pattern, showing a higher surplus in end-2007 and a deficit in the beginning of 2008.

18

Continuously strong remittances inflows covered a large share (45% in the first quarter of 2008) of the trade deficit. However, remittances inflows remained rather constant, while the trade deficit expanded, leading to a further deterioration of the current account balances.

Net foreign direct investment (FDI) inflows remained relatively strong, amounting to 5.8% of GDP in 2007 (with large-scale FDI inflows from the Albtelecom privatisation in the third quarter). Net inflows of other capital dropped somewhat in end-2007 but increased again (above 60% of net FDI inflows) in the first quarter of 2007.

Prices

Consumer price inflation remained relatively high due to price increases in the global commodities markets, but decelerated after a surge in March 2008. In March an increase in electricity tariffs (on average close to 20%) came into effect pushing total inflation to 4.6% year-on-year. A decrease (month-on-month) in food prices lowered the total inflation in May (down to 4.2% year-on-year). Nevertheless, strong increases in food prices in earlier quarters continue to affect the annual food price inflation (constituting up to two-thirds of the total inflation). Increasing global oil prices caused a gradual increase in transportation prices, especially in May (7.5% year-on-year).

Prices in hotels and restaurants decreased (month-on-month) in April-May, contrary to a relatively high growth in earlier quarters. Price changes in other product groups remained rather limited, with prices of clothing and footwear continuing to decrease since the beginning of 2008.


Following several interest rate hikes in 2007, the central bank maintained the key monetary policy rate at 6.25%. Risks to price stability remained contained, leaving the average consumer price inflation in January-May within the target range of 3+/-1 percentage point.

The growth in policy interest rates influenced retail lek-denominated interest rates. The lek

deposit rates increased (to 4.5% for 12-months maturities in April), remaining higher than the equivalent euro deposit rates (by 1.9 percentage points). The nominal interest rates of new credits denominated in lek declined compared to end-2007, suggesting a strengthening of competition in the banking sector. The interest rate spread with the euro-denominated credit remained on average at 5-6 percentage points. Private sector credit growth continued to decelerate but remained high (42.7% year-on-year in April). The growth in money supply (M3) decelerated as well (to 10.5% year-on-year).

Global financial market turbulences have not adversely affected the Albanian economy. The lek appreciated vis-à-vis the euro by 1.4% in the second quarter (to 121.2 ALL/EUR in end-June), close to the exchange rate in end-2007.


Government accounts benefited from strong revenue collection in January-April 2008, while public investment implementation remained weak. In total, the government budget maintained a surplus in the first four months of 2008.

The introduction of a flat income tax rate of 10% together with more efficient tax management measures resulted in high fiscal revenues. The profit and personal income tax income exceeded projections by more than 50%. However, local government revenues remained below targeted levels, despite much stronger than projected small business tax revenues.

Regarding public expenditures, capital expenditures remained far below projections. Current expenditures were also slightly lower than planned, strongly affected by limited operational and maintenance expenditure.

The government has prepared a mid-year budget revision that lowers the fiscal deficit projection from 7.9% to 5.4% of GDP. The high deficit was planned due to large-scale expenditures on road construction, now expected to be lowered. The adoption of a supplementary budget (foreseen to be effective from July 2008) has been delayed.

19


ALBANIA

2003 2004 2005 2006 2007 Q4 07 Q1 08 Q2 08 Apr 08 May 08 Jun 08

1 Output and demand

Industrial confidence 1.1Balance N.A. N.A. N.A. N.A. N.A. : : : : : :

Industrial production 1.2 Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : : : :

Gross domestic product 1.3Ann. % ch 5.8 5.7 5.8 5.5 6.0 : : : N.A. N.A. N.A.

Consumer confidence 1.4 Balance N.A. N.A. N.A. N.A. N.A. : : : : : :

Private consumption 1.5Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : N.A. N.A. N.A.

Gross fixed capital formation 1.6Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : N.A. N.A. N.A.

Change in stocks 1.7% of GDP -1.8 N.A. N.A. N.A. N.A. : : : N.A. N.A. N.A.

2 Labour market

Unemployment 2.1 % 15.2 14.7 14.3 13.9 13.4 13.2 13.0 : : : :

Employment 2.2Ann. % ch 0.9 -0.4 0.9 4.2 -3.2 0.4 0.7 : : : :

Wages 2.3 Ann. % ch 14.4 15.3 9.9 7.5 17.1 13.5 12.4 : : : :


Exports of goods 3.1 Ann. % ch 13.4 22.4 9.3 19.3 24.7 17.7 12.6 : : : :

Imports of goods 3.2Ann. % ch 0.3 11.5 14.2 14.4 26.3 28.8 17.8 : : : :

Trade balance 3.3 % of GDP -23.2 -21.5 -22.3 -22.8 -26.4 : : : N.A. N.A. N.A.

Exports goods and services 3.4% of GDP 20.4 : : : : : : : N.A. N.A. N.A.

Imports goods and services 3.5 % of GDP 45.1 : : : : : : : N.A. N.A. N.A.

Current account balance 3.6% of GDP -6.9 -5.7 -8.9 -6.5 -10.5 : : : N.A. N.A. N.A.

Direct investment (FDI, net) 3.7% of GDP 3.1 4.5 3.2 3.4 5.8 : : : N.A. N.A. N.A.

4 Prices

CPI 4.1Ann. % ch 2.4 2.9 2.4 2.4 2.9 3.6 3.7 : 4.4 4.2 :

GDP Deflator 4.2 Ann. % ch 5.7 2.5 3.0 3.8 4.0 : : : : : :

Producer prices 4.3Ann. % ch N.A. N.A. N.A. 0.8 3.5 5.2 7.4 : : : :

Import prices 4.4 Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : : : :


Interest rate (3 months) 5.1 % p.a. 8.87 6.78 5.55 5.49 5.9 6.2 6.24 : 6.29 6.28 :

Bond yield 5.2% p.a. 11.40 9.92 8.22 7.31 N.A. : : : : : :

Stock markets 5.3 Index : : : : : : : : : : :

M2 5.4Ann. % ch 7.6 8.2 11.7 7.6 9.2 5.5 4.7 : 4.3 : :

Exchange rate LEK/EUR 5.5 Value 136.80 127.17 123.73 122.76 123.31 121.25 123.13 121.87 122.15 121.80 121.68

Nominal eff. exchange rate 5.6Index N.A. N.A. N.A. N.A. N.A. : : : : : :


General government balance 6.1 % of GDP -4.5 -5.1 -3.6 -3.2 -3.4p N.A. N.A. N.A. N.A. N.A. N.A.

General government debt 6.2% of GDP 61.7 56.6 56.7 55.7 53.6p N.A. N.A. N.A. N.A. N.A. N.A.

20

CHARTS


ALBANIA

GDP growth

0

2

4

6

8

2004 2005 2006 2007 2008

% year-on-year

Unemployment

12

13

14

15

16

2004 2005 2006 2007 2008

% of labour force


-12

-9

-6

-3

0

2004 2005 2006 2007 2008


Inflation

0

2

4

2004 2005 2006 2007 2008

CPI, % year-on-year


-3.4-3.2-3.6

-5.1

-6

-4

-2

0

2004 2005 2006 2007 2008

% of GDPExchange rate

115

120

125

130

135

2004 2005 2006 2007 200890

100

110

120

130 Lhs: Nom. LEK/EUR Rhs: REER

up to 2007 dec2001=100from 2007 dec2007=100

up to 2007 dec2001=100from 2007 dec2007=100

21

BOSNIA AND HERZEGOVINA

COMMENTS


On 16 June 2008 the Stabilisation and Association Agreement (SAA) between Bosnia and Herzegovina (BiH) and the EU was signed in Luxembourg. The SAA, which represents a key element of the stabilisation and association process, is the first contractual relationship between the BiH and the EU. Negotiations for the SAA were opened in 2005 and concluded in 2006 and the document was initialled in December 2007. The text of the SAA foreseeing harmonisation of local legislation with the acquis communautaire and liberalisation of trade needs to be ratified by the EU Member States. In the meantime, an Interim Agreement will come into force on 1 July 2008.

The preliminary findings of the IMF mission which undertook the annual Article IV consultations note the strong economic performance in recent years, which is however increasingly surrounded by macroeconomic imbalances. New challenges stem from accelerating inflation, widening external deficits, and a worsening external environment amid rising fiscal and wage pressures. The report takes a critical look at the expansionary fiscal policies in 2007 and 2008, which add a further stimulus to the already strong domestic demand. In particular the mounting commitments for social transfers in the Federation and the rapidly increasing public sector wages are enhancing vulnerabilities. As for structural reforms, the IMF welcomes the recent fiscal reforms in the areas of direct taxation, public wages and the establishment of the Fiscal Council. However, the lack of progress in privatisation and restructuring of state-owned enterprises in the Federation raises concerns.

Output and demand

According to preliminary data released by the central bank, real GDP growth slowed to 6% in 2007 from a revised 6.7% level in 2006. Economic growth was driven by a strong increase in domestic demand, witnessed inter alia by a widening of the current account deficit. On the other hand, the deceleration of economic activity in 2007 is signalled by the slowdown in

industrial output, agricultural production and exports.

In 2007, the growth of industrial production decelerated to 8.6% in the Federation of Bosnia and Herzegovina (FBiH) from 10.4% in 2006 and declined significantly to 1.4% in the Republika Srpska (RS) after a record 19.1% in 2006. In the first five months of 2008, the year-on-year growth of industrial production declined to 4.5% in the Federation and accelerated to 7.5% in the RS. In both entities, the production of energy recovered, but output in the processing industry increased more modestly, by around 4% in the Federation and 1% in the RS.

Labour market

The official unemployment rate declined from 42.9% in December 2007 to 39.3% in April 2008, but while the trend appears to be correct, the magnitude of the decline is overestimated by a break in the series. The massive increase in the number of employees reported in January 2008 (9.2% against the previous month) and afterwards appears to be determined by a change in the statistical sample used to estimate average wages in the RS and does not reflect accurately the evolutions on the labour market. In the Federation, where the statistical methodology remained unchanged, the unemployment rate declined from 46.5% in December 2007 to 44.8% in April 2008. The annual growth of the number of employees accelerated to 5.4% in April 2008, the largest increases being recorded in trade, constructions, financial intermediation and real estate. Nonetheless, the levels of registered employment and unemployment differ significantly from the results of the labour force survey. The Labour Force Survey (LFS) of April 2007 shows a reduction of the unemployment rate to 29% of the labour force from 31.1% a year earlier. The LFS also found that labour force participation remained very low at about 44% of the total working age population. The differences in labour market performance between the two entities widened from April 2006 to April 2007. The economic activity rate increased to 47% in the RS (against 42.3% in the FBiH), while unemployment declined to around 25% (against 31% in the FBiH).

22

Real wage growth accelerated again since February 2008 when the recalculations of public wages took place in the RS. As a result, in April 2008 net wages increased in real terms by 8.2% year-on-year, compared to 3.8% in January 2008. In the Federation real net wages decelerated to 5.2%, also helped by the increase in inflation while in the RS the growth rate stood above 20%. At the same time, nominal wages continued to grow much faster in the RS than in the FBiH since the first quarter of 2008. Consequently, the average net wage in the RS exceeded the FBiH one since February 2008 and was about 2.2% higher in April 2008.


In 2007 the trade deficit widened to around 39% of GDP from 35% of GDP in 2006 as imports rose by 18.7% year-on-year outperforming the 15% growth of exports. The development also reflects the introduction of VAT in January 2006 which led to a frontloading of imports in the second half of 2005, thereby depressing the volume of imports in 2006. The current account deficit also widened from 8.4% of GDP in 2006 to 13.1% of GDP in 2007, but it was fully financed by net FDI which owing to the large privatisations of Telekom Srpska and the RS refineries surged to 13.8% of GDP.

In the first four months of 2008, the trade deficit widened further by around 38%, year-on-year. Despite the slight acceleration of exports to an annual growth rate of around 16%, imports continued to outpace them and grew by 28% year-on-year. The growth of exports decelerated in 2007 and so far in 2008 to their lowest rate since 2003, a visible loss of speed being recorded in several branches such as wood products, base metals and motor vehicles.

Due to strong capital inflows official foreign exchange reserves were higher by around 15% at the end of April 2008 from a year before, but the growth rate started to decline compared to 2007. External public debt continued to decline in 2007 and reached around 18.5% of GDP at the end of the year, down from 21.3% of GDP in 2006. Total external debt is estimated at below 50% of GDP in 2007, but no official data is available for this indicator.

Prices

In 2007 inflation dropped as the effects of the VAT introduction dissipated and average CPI inflation reached 1.5% in December. At the same time, inflation started to pick up in the second half of 2007, driven by an increase in food, energy and transport prices and reached 4.9% in December. It further accelerated to 8.2% in May 2008, bringing up also the annual average inflation to 4.2%. In the two entities, end of period CPI inflation also increased to 8.3% in the FBiH and 7.9% in the RS in May 2008. The annual average inflation rates for 2007 stood at 1.9% in the FBiH and 1.1% in the RS.


The monetary policy of the Central Bank of Bosnia and Herzegovina (CBBH) is conducted under the framework of a currency board arrangement with the euro as the anchor currency. The annual growth of credit accelerated from 23.4% at the end of 2006 to 28.5% at the end of December 2007 and 29.2% in April 2008. In an attempt to slowdown the growth of credit the CBBH raised the reserve requirements rate to 18% as of January 2008, from 15% previously. At the end of April, the stock of credit to households had expanded by 28.3% year-on-year, slower than the 30% growth rate booked by the corporate sector. The annual growth of broad money decelerated to around 16% at the end of May 2008 from 27.4% a year before.


Preliminary GFS results of the 2007 budget execution show that the fiscal policy turned expansionary last year as the general government surplus shrunk to 1.3% of GDP from 2.9% of GDP in 2006. A large increase in public spending of about 3.6% of GDP over 2006 was driven by social transfers surging at an annual rate of close to 30% in the FBiH and a public sector wage bill increasing by around 19% in the RS and 15% in the FBiH. Also public investments grew in both entities, by around 25% in the FBiH and more than 100% in the RS. Nonetheless the quality of public spending deteriorated markedly in the FBiH. The adopted budgets point to a continuing fiscal slippage as the general government may record a deficit between 2 and 3% of GDP in 2008.

23



2003 2004 2005 2006 2007 Q4 07 Q1 08 Q2 08 Apr 08 May 08 Jun 08

1 Output and demand

Industrial confidence 1.1 Balance N.A. N.A. N.A. N.A. N.A. : : : : : :

Industrial production 1.2 Ann. % ch N.A. N.A. 10.5 11.6 6.7 3.5 5.4 : 6.6 5.5 :

Gross domestic product 1.3Ann. % ch 3.0 6.3 3.9 6.7 6.0 : : : N.A. N.A. N.A.


Private consumption 1.5Ann. % ch N.A. N.A. 6.2 8.3 : : : : N.A. N.A. N.A.

Gross fixed capital formation 1.6 Ann. % ch N.A. N.A. 18.5 -7.6 : : : : N.A. N.A. N.A.

Change in stocks 1.7% of GDP N.A. 3.0 0.1 -1.0 : : : : N.A. N.A. N.A.

2 Labour market

Unemployment 2.1 % 42.0 43.1 44.7 44.2 42.9 42.9 39.9 : 39.3 : :

Employment 2.2 Ann. % ch -0.6 0.8 0.8 2.3 4.4 4.4 : : : : :

Wages 2.3 Ann. % ch 8.4 4.3 6.1 9.6 9.8 10.9 14.1 : 16.5 : :


Exports of goods 3.1 Ann. % ch 11.5 28.7 22.8 30.5 15.0 12.6 16.5 : 22.1 18.2 :

Imports of goods 3.2 Ann. % ch 6.0 7.6 12.5 1.2 18.7 15.0 26.6 : 27.9 15.0 :

Trade balance 3.3 % of GDP -49.5 -45.6 -45.8 -34.8 -38.7 -39.5 -41.3 : N.A. N.A. N.A.

Exports goods and services 3.4% of GDP 26.1 29.4 32.7 36.7 37.9 37.9 : : N.A. N.A. N.A.

Imports goods and services 3.5 % of GDP -71.6 -70.7 -73.9 -66.4 -71.5 -71.5 : : N.A. N.A. N.A.

Current account balance 3.6% of GDP -19.4 -16.3 -18.0 -8.4 -13.1 -13.4 -15.2 : N.A. N.A. N.A.

Direct investment (FDI, net) 3.7 % of GDP 4.6 7.0 5.5 5.8 13.7 14.0 13.3 : N.A. N.A. N.A.

4 Prices

CPI 4.1 Ann. % ch 0.6 0.5 4.3 6.1 1.5 4.0 6.5 : 7.5 8.2 :

GDP Deflator 4.2 Ann. % ch 10.1 2.5 3.3 6.3 3.6 : : : N.A. N.A. N.A.

Producer prices 4.3 Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : : : :



Interest rate (3 months) 5.1 % p.a. N.A. N.A. N.A. N.A. N.A. : : : : : :

Bond yield 5.2% p.a. N.A. N.A. N.A. N.A. N.A. : : : : : :

Stock markets 5.3 Index N.A. N.A. N.A. 4,175 7,532 6,517 5,055 : 4,499 4,656 :

M2 5.4Ann. % ch 4.8 21.0 17.6 21.6 25.0 22.2 18.9 : 17.4 15.8 :

Exchange rate BAM/EUR 5.5 Value 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96 1.96

Nominal eff. exchange rate 5.6Index 97.4 96.4 95.21 95.00 95.5 95.7 : : : : :


General government balance 6.1 % of GDP 0.7 1.6 2.4 2.9 1.3 : : : N.A. N.A. N.A.

General government debt 6.2 % of GDP 27.7 25.5 25.6 21.3 18.5 : : : N.A. N.A. N.A.

24

CHARTS European Commission, ECFIN-D-1


GDP growth

2

4

6

8

2004 2005 2006 2007 2008

% year-on-year

Unemployment

41

42

43

44

45

2004 2005 2006 2007 2008

% of labour force


-18

-16

-14

-12

-10

-8

2004 2005 2006 2007 2008

Annual movingaverage, % GDP

Inflation

0

2

4

6

8

10

2004 2005 2006 2007 2008

RPI/CPI(from 2006), % year-on-year


1.6

2.4

2.9

1.3

0

1

2

3

4

2004 2005 2006 2007 2008


1.5

2

2.5

3

2004 2005 2006 2007 200895

100

105

110

Lhs: Nom. BAM/EUR Rhs: REER

Index 2002=100

25

MONTENEGRO

COMMENTS


On 6 March 2006 the Government adopted the Privatisation Plan for 2008. So far the privatisation process continues with the adoption of the strategy for tobacco producer Duvanski Kombinat Podgorica, and the establishment of the tender commissions for the sale of dairy Zora and Marina Bar. The medical military complex Meljine was sold in June to local Atlas Group who plans to build a new hospital and tourism facilities. The tourist company HTP Ulcinjska Rivijera went out the insolvency proceedings, enabling the privatisation of the government majority stake. The government also adopted the draft law on ports, necessary for the denationalisation of the company managing the main port, Luka Bar. Yet, the negotiations with the second-ranked bidder in the tender for shipyard Jadran failed.

In April, the government adopted the National Programme for Integration with the EU (NPI). The programme details actions to be taken in the next five-year period for harmonising the national legal framework with the EU's Acquis.

On 21 May, Mr Filip Vujanović became the first president of independent Montenegro.

Output and demand

Estimations of real GDP growth in 2007 are above 7%, supported by last year's successful tourism season and the rise in disposable income of households, boosted by rapid credit expansion and rising asset prices. This trend continued during the first quarter of 2008, with GDP expanding by 8.1% in real terms. Services, and notably tourism, financial intermediation and real estate remained the main drivers of growth.

Moreover, industrial output expanded by 3.8% in the first five months of the year, thanks to the expansion of the utility and mining industries and despite halting production for maintenance works at the thermal power plant. However, the manufacturing sector, with the exception of food and metal industries, recorded a slight decline of 0.8% in the same period.

Labour market

The statistical office (MonStat) produced in June its first quarterly Labour Force Survey. According to it, in the first quarter of 2008 the unemployment rate stood at 18% despite a still modest participation rate of 59.7%. By contrast, the unemployment rate recorded at the Employment Agency was of 11.8% for the same period, further decreasing to 11.4% end-May.

By May 2008 the average net wage expanded by 25% on the year, reaching EUR 399. Education, health and state administration employees witnessed the highest net earning expansion (30%), while the highest wages remained those in financial intermediation (EUR 842).


Negotiations on WTO accession are well advanced, and membership seems attainable by year end. Montenegro signed in April 2008 a bilateral agreement with the EU, successfully concluding bilateral talks on this issue.

The current account deficit continued widening during the first quarter of 2008. Further deterioration of the visible trade balance resulted in the trade deficit reaching 65% of GDP as a consequence of further decline of exports and the high expansion of imports driven by booming domestic demand. Despite the good outcome of the tourism season, the balance of services turned negative, while the current transfers and the income balances surpluses declined.

During the first quarter of 2008 FDI grew by 6.8% year-on-year. Yet its coverage of the current account gap decreased to 33%, compared with 90% in 2006. Portofolio divestments resulting in outflows of EUR 7.7 million. The economy is increasingly recurring to foreign debt financing to cover the growing external imbalances.

26

Prices

Current price levels are still reflecting the impact of external shocks rather than strong demand pressures. Consumer prices peaked to 9.5% year-on-year in May due to the impact of further rises in food prices, but also in transport and communication. By contrast, prices of housing, culture, clothing and footwear witnessed some deceleration. Headline inflation should start decelerating during the next months as the base effect of previous year hikes fades away.

In the first four months of 2008, industrial inflation slightly decelerated to 11.5% year-on-year from 12.6% a month earlier. The manufacturing sector, and notably the metal industry, was the main contributor to the expansion slowdown. Meanwhile utility sector prices remained flat.


A series of restrictive measures introduced by the Central Bank and entering into force in 2008 (credit growth ceilings and increased minimum solvency coefficients) succeeded in moderating the elevated credit activity. The stock of extended credits grew by 18% during the first five months of the year, compared with 64% a year earlier.

However, the expansion of the provisions for losses, ensuing from these new restrictive measures, resulted in a sharp decline by 68% year-on-year of the combined profit of banks during the first quarter of 2008, despite the strong expansion of the net interest income from fees and commissions. Credit to corporations represented 58% of total extended loans at end-March, clearly favouring investments over consumption. Yet, deposits growth continued growing slower than credits for the sixth consecutive month.

The insurance market, until now dominated by the car insurance segment, is rapidly developing with the entry of several new players since the start of the year (i.e. Serbian Delta and Delta Life-Osiguranje, Atlas Life, Croatia Osiguranje, and Austrian UNIQA Nezivotno Osiguranje).

A Montenegroberza stock exchange offer to take over its competitor Nex Montenegro failed as it was not accepted by a single shareholder, despite offering 155% more than the par value of the shares. Meanwhile, the morose situation of the stock markets and the lack of investors forced the termination of operations of one brokerage house, while threatening several others of the 32 brokerage companies currently operating in the country.


In June 2008 the government amended the corporate tax law, reducing from 15% to 9% the tax rate on dividends and profit shares. The authorities also extended the annual eco-tax for road vehicles to foreign ones, to be paid at the border. The amount of this green tax ranges from 10 euros for cars, up to 150 euros for larger vehicles.

After an outstanding budget surplus in 2007 (7.4% of GDP), the fiscal performance continued more moderately in the first quarter of 2008, recording a surplus of 1.5% of GDP. Rapid growth was observed in both revenue and expenditure. Tax revenues expanded by 50.3% year-on-year as a result of rising VAT collection and strong proceeds from personal income tax. In addition, the robust import growth also resulted in larger receipts from excises and customs duties. Main developments on the expenditure side were the 22% year-on-year swell in gross wages, and the expansion of transfers to public institutions. In contrast with previous exercises, with execution below-target, capital expenditures in 2008 are being implemented according to budgeted levels.

The public debt reached 29% of GDP at the end of March 2008, growing by almost 7% on the year in nominal terms. Public domestic debt surged by 17% during the same period, accounting for 41% of total public debt. The government took over the obligations of state funds towards the commercial banks. It also recognised additional obligations from foreign currency savings deposited in two Serbian banks. Additionally, obligations from ongoing restitution procedures increased by additional EUR 0.8 million.

27


MONTENEGRO

2003 2004 2005 2006 2007 Q4 07 Q1 08 Q2 08 Apr 08 May 08 Jun 08

1 Output and demand


Industrial production 1.2 Ann. % ch 2.4 13.8 -1.9 1.0 0.1 13.8 11.5 : -5.3 -9.9 :

Gross domestic product 1.3Ann. % ch 2.5 4.4 4.2 8.6 7.0 7.4 8.1 : N.A. N.A. N.A.


Private consumption 1.5Ann. % ch : : : : : : : : N.A. N.A. N.A.

Gross fixed capital formation 1.6 Ann. % ch : : : : : : : : N.A. N.A. N.A.

Change in stocks 1.7% of GDP 2.1 -0.5 -0.3 3.6 : : : : N.A. N.A. N.A.

2 Labour market

Unemployment 2.1 % 26.0 22.3 18.5 14.7 11.9 11.9 11.8 : 11.5 11.4 :

Employment 2.2 Ann. % ch -3.3 29.9 2.0 3.8 5.6 5.6 6.3 : 5.3 5.8 :

Wages 2.3 Ann. % ch N.A. 11.7 8.0 15.6 14.2 20.3 24.4 : 22.8 24.4 :


Exports of goods 3.1 Ann. % ch -16.1 67.1 1.9 40.7 -3.2 -30.8 -22.3 : : : :

Imports of goods 3.2 Ann. % ch -15.7 37.9 12.2 53.7 43.7 29.1 34.7 : : : :


Exports goods and services 3.4% of GDP 30.6 42.0 43.5 49.4 : : : : N.A. N.A. N.A.

Imports goods and services 3.5 % of GDP 47.0 58.1 61.1 79.1 : : : : N.A. N.A. N.A.



4 Prices

CPI 4.1 Ann. % ch 6.8 2.2 2.4 3.0 4.3 7.4 8.0 : 9.1 9.5 :

GDP Deflator 4.2 Ann. % ch 8.5 6.2 4.5 9.8 5.7 14.2 27.1 : N.A. N.A. N.A.

Producer prices 4.3 Ann. % ch 4.6 5.8 2.1 3.1 8.5 13.0 12.0 : 11.5 : :



Interest rate (3 months) 5.1 % p.a. N.A. 10.58 1.20 1.21 : : : : : : :

Bond yield 5.2% p.a. N.A. 9.98 3.09 1.17 0.9 : : : : : :

Stock markets 5.3 Index 1000 1758 5670 14406 36159 35017 29490 21839 22729 22753 20035

M21 5.4Ann. % ch -0.3 10.6 58.7 82.9 71.9 71.9 50.2 : 45.0 : :

Exchange rate EUR/EUR 5.5 Value 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Nominal eff. exchange rate 5.6Index N.A. N.A. N.A. N.A. N.A. : : : : : :


General government balance 6.1 % of GDP -2.4 -2.6 -2.3 2.7 7.4 7.4 1.5 : N.A. N.A. N.A.

General government debt 6.2 % of GDP 47.1 44.5 38.6 32.6 30.4 30.4 29.0 : N.A. N.A. N.A.

28

CHARTS


MONTENEGRO

GDP growth

0

2

4

6

8

2004 2005 2006 2007 2008

% year-on-year

Unemployment

10

15

20

25

30

2004 2005 2006 2007 2008

% of labour force


-45

-30

-15

0

2004 2005 2006 2007 2008


Inflation

0

3

6

9

2004 2005 2006 2007 2008

CPI, % year-on-year


-2.6-2.3

2.7

7.4

8.5

-3

0

3

6

9

2004 2005 2006 2007 2008


0.5

1

1.5

2

2004 2005 2006 2007 200895

100

105

110

Lhs: Nom. EUR/EUR Rhs: REER

Index 2003=100

29

SERBIA

COMMENTS


On 29 April, the Council for General Affairs and External Relations signed the Stabilisation and Association Agreement (SAA) and an Interim Agreement with Serbia. The Council stated that this was an important step on the country's path towards the EU and it looked forward to intensify the cooperation with Serbia through the agreements, it also recalled that full cooperation with the ICTY, including all possible efforts to arrest and transfer indictees, is an essential element of these Agreements.

On 11 May, legislative, provincial and municipal elections took place in Serbia. In contrast to all pre-election polls showing the Serbian Radical Party ahead of others, the results gave a clear victory to the pro-European bloc lead by the Democratic Party (DS), which however failed to obtain sufficient majorities to engage in smooth and speedy talks on formation of new central and local governments.

Government formation talks have been protracted and following the failure of negotiations between the Socialist Party of Serbia (SPS) and Democratic Party of Serbia/New Serbia, the formation of a coalition government between the SPS and the DS-lead coalition is a likely outcome.

On 15 May, the care-taker government adopted a Memorandum on Budget and Economic and Fiscal Policy for 2009, with projections for 2010 and 2011. The memorandum projects a 6.5% GDP growth rate in 2009 and 2010, with a rise to 7.5% in 2011, and specifies also preservation of macroeconomic stability, gradual lowering of inflation (to 4% in 2011), a rise in salaries and pensions, and a stable dinar exchange rate. The programme envisages a reduction in public spending to about 40% of GDP by 2011 from 43.8% – a projection that was also part of the previous memorandums but was never achieved.

Output and demand

During the first quarter of 2008, GDP growth accelerated to 8.2% year-on-year, from 6.9% year-on-year in the fourth quarter of 2007.

Economic growth remained driven by the service sector, in particular wholesale and retail trade, transportation and telecommunication, as well as financial intermediation. Growth of industrial production accelerated to 6.0% year-on-year during the first quarter of 2008 compared to 0.7% in the fourth quarter of 2007, driven by the resumption of production at US steel, following an overhaul of the plant during the fourth quarter of 2007.

During the first quarter, export growth accelerated to 36.3% year-on-year while import growth remained high, at 39.7%.

Labour market

Labour market conditions remained difficult and employment continued to decline during the first quarter by 0.7% year-on-year, a trend which continued in April and May 2008. The unemployment rate increased to 18.6% during the first quarter and continued to rise thereafter. Wage growth slowed to 8% during the first quarter but re-accelerated in April and May. Due to an acceleration of consumer price inflation, real wages fell by 3.3% year-on-year during the first quarter of 2008. However, in April, real wage growth reached 10.2% year-on-year and slowed to 7.4% year-on-year in May 2008.


During the first quarter of 2008, exports and imports of goods and services grew respectively to 30.1% and 53.7% of GDP, contributing to a further widening of the current account deficit (CAD) to 17.0% of GDP. This was also driven by higher repayments of interest and principal on foreign debt. For the whole year of 2007, the current account deficit was revised downwards to 12.4% of GDP and to 9.4% of GDP for 2006 due to a change in the methodology by the National Bank of Serbia.

During the first quarter of 2008, capital inflows slowed to 15.3% of GDP. FDI stood at 9.4% of GDP, accounting for some 55% of the CAD. Portfolio investment recorded a net outflow by 0.6% of GDP related to the sell-off at the

30

Belgrade stock exchange during the first quarter. Net financing from foreign loans fell to 2.6% of GDP, due to substantial repayments.

As a result of the slowdown in capital inflows, foreign exchange reserves at the National Bank of Serbia (NBS) fell by 0.7% of GDP. However, reserves still remained at very comfortable 8 months worth of imports of goods and service.

External debt stood at EUR 17.4 billion, accounting for some 62% of GDP at end-April 2008. Private and public sector external debt accounted for 41% and 21% of GDP, respectively.

Prices

Retail price inflation rose to 11.3% year-on-year during the first quarter, compared to 9.1% during the fourth quarter of 2007. This trend continued somewhat during the second quarter and inflation reached 12.0% and 11.6% year-on-year in April and May, respectively, as the price for crude oil and its derivative reached new highs in world markets.

Core inflation also picked-up during the first quarter and reached 6.6% year-on-year. It rose further to 8.3% year-on-year in April, remaining well above the 3-6% policy target band for core inflation for 2008.


The NBS increased its repo rate by 625 basis points to 15.75% between December 2007 and May 2008 to stem rising inflationary pressures but also to support the local currency, which had come under depreciation pressure in the foreign exchange market during the first quarter, amid growing political uncertainty.

The euro-dinar exchange rate fluctuated between 79.23 and 83.83 during the first quarter and volatility remained high during the second quarter as well.

Both indices of the Belgrade Stock Exchange retreated during the first quarter of 2008 giving up some 20%. However, following the result of the May elections, the stock market recovered and has risen by 13% from its low reached in April and until end-June.

Monetary aggregates continued to expand robustly during the first quarter of 2008 and thereafter. The 12-month moving average of M2 and dinar reserve money grew in May by 40.6% and 25.7% year-on-year, respectively.

Credit growth continued to recover during the first quarter from its trough reached last summer and the 12-month moving average of credit to the non-monetary sector expanded at a rate of 33.6% year-on-year in April.


During the first quarter of 2008, consolidated revenues and expenditures grew by 19.2% and 19.0% year-on-year, respectively. The budget recorded a surplus of 0.5% of GDP, following a deficit of 2.3% of GDP during the fourth quarter of 2007. The ratio of expenditures to GDP remained at 43%. However, the envisaged reduction of expenditures to 40.6% of GDP for 2007 and to 39.5% for 2008, as announced in the 2007 budget memorandum on economic and fiscal policies, has not materialised yet.

On the revenue side, customs and profit tax revenue grew strongest at 22.9% and 22.8% year-on-year, respectively, due to a robust growth of imports and increasing profitability of economic entities. On the expenditure side, outlays grew strongest for wages (20.3%), subsidies (40.4%) and social benefits (22.3%). In contrast, debt repayment and capital expenditures declined by 35.5% and 40.9% year-on-year, respectively.

The expected decline in privatisation revenues in 2008 may create a serious financial gap towards year-end and may increase the need for additional debt financing. To cover this short-fall, the authorities are contemplating issuing short-term dinar treasury bills.

31

TABLE


SERBIA

2003 2004 2005 2006 2007 Q4 07 Q1 08 Q2 08 Apr 08 May 08 Jun 08

1 Output and demand


Industrial production 1.2 Ann. % ch -3.0 7.0 0.8 4.7 3.7 0.7 6.0 : 3.1 : :

Gross domestic product 1.3Ann. % ch 2.5 8.4 6.2 5.7 7.5 6.9 8.2 : N.A. N.A. N.A.


Private consumption 1.5Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : N.A. N.A. N.A.

Gross fixed capital formation 1.6 Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : N.A. N.A. N.A.

Change in stocks 1.7% of GDP 6.6 14.3 9.2 7.4 N.A. : : : N.A. N.A. N.A.

2 Labour market

Unemployment 2.1 % 16.0 19.5 21.8 21.6 18.8 17.9 18.6 : 19.4 19.1 :

Employment 2.2 Ann. % ch -2.7 0.4 -6.7 -3.8 1.0 -1.0 -0.7 : -0.8 -0.7 :

Wages 2.3 Ann. % ch 25.3 23.7 24.1 24.4 22.1 19.8 8.0 : 22.2 19.0 :


Exports of goods 3.1 Ann. % ch 32.8 27.8 27.2 43.4 37.3 30.0 36.3 : 44.5 : :

Imports of goods 3.2 Ann. % ch 33.2 43.8 -2.7 25.9 40.9 43.8 39.7 : 50.9 : :


Exports goods and services 3.4% of GDP 21.4 22.7 25.1 27.7 27.6 25.8 30.1 : N.A. N.A. N.A.

Imports goods and services 3.5 % of GDP 40.2 48.4 45.2 47.6 48.3 47.9 53.7 : N.A. N.A. N.A.



4 Prices

RPI 4.1 Ann. % ch 11.7 9.8 17.3 12.7 6.8 9.1 11.3 : 12.0 11.6 :

GDP Deflator 4.2 Ann. % ch 12.1 12.7 15.1 14.9 : : : : : : :

Producer prices 4.3 Ann. % ch 4.6 9.1 14.2 13.3 5.9 8.5 11.7 : 13.4 12.4 :

Import prices 4.4 Ann. % ch 15.3 21.4 5.7 4.0 12.1 16.4 22.3 : 24.7 : :


Interest rate (3 months) 5.1 % p.a. N.A. 21.16 17.54 13.48 6.4 4.7 4.28 : : : :


Stock markets 5.3 Index N.A. N.A. 1,954 2,658 3,831 3,831 3,068 : : : :

M3 5.4Ann. % ch 29.1 31.2 39.1 37.4 41.1 44.0 46.4 : 39.3 : :

Exchange rate RSD/EUR 5.5 Value 65.29 73.10 83.25 83.91 79.90 80.35 82.77 80.54 80.69 82.52 78.41

Nominal eff. exchange rate 5.6Index 97.3 93.5 92.7 103.9 100.1 101.7 96.7 : 100.5 : :


General government balance 6.1 % of GDP -1.1 0.9 0.7 -1.5 -1.9 -2.3 0.1 N.A. N.A. N.A. N.A.

General government debt 6.2 % of GDP 64.3 53.3 50.3 36.2 29.4 29.4 25.9 N.A. N.A. N.A. N.A.

32

CHARTS


SERBIA

GDP growth

0

5

10

2004 2005 2006 2007 2008

% year-on-year

Unemployment

800

850

900

950

1000

1050

2004 2005 2006 2007 2008

Total registered, thousands


-20

-15

-10

-5

0

2004 2005 2006 2007 2008

Annualized,% of GDP

Inflation

0

5

10

15

20

2004 2005 2006 2007 2008

RPI, % year-on-year


-1.9

0.7

-1.5

0.9

#N/A

-2

-1

0

1

2

2004 2005 2006 2007 2008


50

60

70

80

90

100

110

2004 2005 2006 2007 200890

100

110

120

130

140

150Lhs.Nom. RSD/EUR Rhs: REER

Index 2003=100

33

KOSOVO* *as defined by UNSCR 1244

COMMENTS


Following the declaration of independence on 17 February 2008, so far 43 countries have recognised Kosovo, among them seven of the G8 countries and 20 EU Member States.

On 15 June 2008, Kosovo's new Constitution which was adopted by the Assembly on 09 April, entered into force. At the same time, a reconfiguration of UNMIK was initialled, granting an enhanced operational role to the European Union in the rule of law area under a UN “umbrella” headed by the UN Secretary General's Special Representative (SRSG), in line with the original resolution 1244 from 1999 that established the mission. Mr Lamberto Zannier was appointed new SRSG, as a successor to Mr Joachim Rücker. While the deployment of the EU rule of law mission EULEX is ongoing, the International Civilian Office headed by Mr Pieter Feith has started to become operational.

For 11 July 2008, the European Commission has called for a donors' conference that aims to address the socio-economic financing needs of Kosovo as identified by the Kosovan authorities in a Medium-Term Expenditure Framework (MTEF) for 2009-2011, which was adopted by the government on 12 June 2008.

Output and demand

The Statistical Office of Kosovo and the IMF have recently revised GDP figures upwards by some 30% for the years 2004-2006. The revision was a result of a major update of the statistical methodological inventory bringing it closer to current EU standards. Although the upward revision has lead to a somewhat more favourable picture of Kosovo's macroeconomic performance, the general picture that Kosovo lags behind its neighbours and that growth is too sluggish in order to meet the substantial development needs remains unchanged, even though the year-on-year growth rates are on the rise with 3.9% in 2006 and 4.4% in 2007 (IMF estimates).

Labour market

The number of registered job seekers slightly increased during the first months of 2008 to 336,319 in May. This figure is 0.5% higher than at year-end 2007 and 1.2% above the one for May 2007. For 2007, the unemployment rate is estimated at 43%.

The enormous challenge that Kosovo faces on the labour market is aggravated by the fact that currently some 30,000 young people enter the market every year. With current growth rates, the economy cannot absorb this additional labour supply of a young and growing labour force. The ongoing downsizing of the international presence (the dismantling of UNMIK will not be fully absorbed by EULEX and ICO which will be considerably smaller, creating only a limited demand for local labour) will add to the difficult labour market situation especially in the capital Pristina.

According to the Ministry of Labour and Social Welfare, average nominal wages have remained relatively stable since 2005 at about EUR 240. While inflation rates have picked up, real wages decrease leading to reduced household real income and pressure on public and private employers to increase wages.


During the first four months of 2008, exports of goods more than doubled compared to the same period of the previous year. Imports increased by 20% during the same period. The 12-month moving average of the coverage ratio (exports in percent of imports) improved gradually to 10.8% in April 2008, one percentage point above the January figure. Due to the still very weak export base the trade deficit (goods only) increased further to 43.6% in the first quarter 2008 compared to 41.3% for the first quarter in 2007.

In 2007, the dynamics of foreign direct investments (FDI) was spurred by the ongoing privatisation process. FDI grew by 70% compared to the previous year, being the main source of financing for the current account deficit which is estimated at 16% (including foreign assistance, using revised GDP figures).

34

However, in the first half of 2008, privatisation activity came to a standstill and it is uncertain how fast it can resume against the background of the transfer of authority from UNMIK to local authorities. Besides FDI, workers' remittances were the main component to offset the current account deficit. In 2007, they grew by almost 12% compared to the previous year.

Kosovo currently does not assume any sovereign debt servicing obligations as Serbia continues to service Kosovo's potential share of public external debt. However, Kosovo has started preparing for taking over its share of sovereign debts currently serviced by Serbia, e.g. by earmarking funds for notional debt servicing in its medium-term budget planning.

Prices

Inflation is mainly driven by food price developments which make up almost half of the consumer basket. In May 2008, bread prices had increased by 60%, oils and fats by almost 70%, compared to the previous year. Altogether, prices of food and non-alcoholic beverages augmented by 26.7%, contributing to an overall inflation rate of 14.2%, the highest level ever recorded in Kosovo since the beginning of the monthly publication of the CPI in 2002.

With the exception of April when it was slightly negative, monthly inflation ranged between 0.5% and 1% this year, indicating that inflationary pressures do persist, even though these rates are well below the record figures experienced in August and October 2007 when they stood between 4% and 5%.

Price developments should be closely observed, as there are more and more indications of second-round effects which could contribute to making part of the recent high increase in the price level permanent. It remains to be seen how policy makers react to these price changes and to what extent they are able to withstand demands for high wage increases.


With the coming into force of the Constitution, the former Central Banking Authority of Kosovo was renamed Central Bank of Kosovo. A new central banking law is currently under preparation, aiming at ensuring the independence and autonomy of the central bank.

With Kosovo's monetary framework remaining anchored on the use of the euro as legal tender, the Central Bank of Kosovo cannot pursue an independent monetary policy. It carries out some central banking tasks such as the supervision of the financial sector. It closely monitors credit growth and liquidity in the banking sector, with liquidity ratios and reserve requirements being its main tools of intervention.

Due to increased competition caused by three new banks that entered the market in 2007, the interest rate spread decreased by 44 basis points until the end of last year. It shows a further downward trend, fostered also by another new competitor that entered the market in early 2008. A new regulation is intended to improve financing conditions for small and medium-sized enterprises.

The financial sector in Kosovo remains solid and profitable. The turmoil in international financial markets has had no visible impact on the domestic market so far.


On 12 June 2008, the government adopted the Medium-Term Expenditure Framework 2009-2011, which, including the year 2008, defines a financing gap of EUR 1.4 billion for the whole period.

In the budget for 2008, EUR 1,200 million are foreseen as expenditures, after 718 million in 2007. This vast increase is mainly reflected in the level of capital expenditures which rose from EUR 155 million to EUR 405 million. However, due to limited implementation capacity it is expected that only around 70% of budgeted capital expenditures will be executed in 2008. Current expenditures increase by almost 14% in nominal terms from 2007 to 2008.

Revenues (net of one-off measures) increase from EUR 822 million in 2007 (final outcome) to EUR 867 million in the budget for 2008. After the first five months of 2008, revenue collection is slightly above the planned level, mainly due to developments in border revenues.

The government has started a mid-year budgetary review process, committed to keep the already defined operational budgetary lines. Therefore, there will only be movements within the lines but no change in the overall structure and no shifts from capital to current expenditures.

35


KOSOVO*

2003 2004 2005 2006 2007 Q4 07 Q1 08 Q2 08 Apr 08 May 08 Jun 08

1 Output and demand


Industrial production 1.2 Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : : : :

Gross domestic product 1.3Ann. % ch -0.1 3.4 2.0 3.9 4.4 : : : : : :


Private consumption 1.5Ann. % ch 1.9 3.6 8.0 4.3 4.7 : : : : : :

Investment (Gross fixed cap form) 1.6 Ann. % ch -7.4 -6.1 -6.2 10.6 14.9 : : : : : :

Change in stocks 1.7% of GDP N.A. N.A. N.A. N.A. N.A. : : : : : :

2 Labour market

Unemployment 2.1 % 49.7 39.7 41.4 44.9 43.0 : : : : : :

Employment 2.2 Ann. % ch -24.8 4.7 -4.6 : : : : : : : :

Wages 2.3 Ann. % ch 2.0 9.3 8.5 N.A. : : : : : : :


Exports of goods 3.1 Ann. % ch 1.2 1.9 1.9 3.6 4.4 55.9 136.9 : 82.3 : :

Imports of goods 3.2 Ann. % ch 34.6 35.6 38.6 42.0 47.0 14.9 18.6 : 25.2 : :

Trade balance 3.3 % of GDP -33.4 -33.7 -36.7 -38.5 -42.6 -43.4 -43.6 : -42.0 N.A. N.A.

Exports goods and services 3.4% of GDP 10.0 8.0 7.6 9.3 10.3 : : : N.A. N.A. N.A.

Imports goods and services 3.5 % of GDP 56.1 40.3 42.7 46.6 49.7 : : : N.A. N.A. N.A.

Current account balance 3.6% of GDP -8.4 -12.7 -12.5 -13.8 -16.1 : : : N.A. N.A. N.A.

Direct investment (FDI, net) 3.7 % of GDP 0.7 0.7 2.8 7.9 9.4 : : : N.A. N.A. N.A.

4 Prices

CPI 4.1 Ann. % ch 1.2 -1.1 -1.4 0.6 4.4 10.5 11.8 : 13.6 14.2 :

GDP Deflator 4.2 Ann. % ch 1.2 -2.4 -1.7 0.2 3.4 : : : : : :

Producer prices 4.3 Ann. % ch N.A. N.A. N.A. N.A. N.A. : : : : : :



Interest rate (3-12 months) 5.1 % p.a. 14.60 15.70 15.60 15.47 15.5 15.5 : : : : :


Stock markets 5.3 Index N.A. N.A. N.A. N.A. N.A. : : : : : :

Broad money liabilities 5.4Ann. % ch 20.7 43.6 21.0 5.5 : : : : : : :

Exchange rate EUR/EUR 5.5 Value 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Real eff. exchange rate (CPI) 5.6Index -0.9 -3.0 -5.0 -2.8 -0.1 : : : : : :


General government balance 6.1 % of GDP 2.1 -4.5 -3.1 2.5 7.2 : : : N.A. N.A. N.A.

General government debt 6.2 % of GDP N.A. N.A. N.A. N.A. N.A. : : : N.A. N.A. N.A.* as defined by UNSCR 1244

36

CHARTS


KOSOVO*

* as defined by UNSCR 1244Source of data: IMF, national sources

GDP growth

0

2

4

6

8

2004 2005 2006 2007 2008

% year-on-year

Unemployment

30

40

50

2004 2005 2006 2007 2008

% of labour force


-12.7 -12.5-13.8

-16.1e

-19.8e

-25

-21

-17

-13

-9

-5

-1

2004 2005 2006 2007 2008

% of GDP

Inflation

-5-3-113

579

1113

15

2004 2005 2006 2007 2008

CPI, % year-on-year


-3.1

2.5

-4.5

7.2

0.0

-6

-4

-2

0

2

4

6

8

2004 2005 2006 2007 2008


0

1

2

2004 2005 2006 2007 200880

85

90

95

100

105

110

Lhs: Nom. EUR/EUR Rhs: REER

Index 2001=100

37

CROATIA EXPLANATORY NOTES

No. Indicator Note Source

1. Output and demand

1.1. Industrial confidence indicator Not available N.A.

1.2. Industrial production Annual percentage change, volume, excluding construction Ecowin/Reuters

1.3. Gross domestic product Annual percentage change, volume (1997 prices) Ecowin/Reuters

1.4. Consumer confidence indicator Not available N.A.

1.5. Private consumption Annual percentage change, volume (1997 prices) Ecowin/Reuters

1.6. Gross fixed capital formation Annual percentage change, volume (1997 prices) Ecowin/Reuters

1.7. Change in stocks In percent of GDP, volume (1997 prices) Ecowin/Reuters

2. Labour market

2.1. Unemployment In percent of total labour force, Labour Force Survey definition for annual data. Monthly and quarterly data are based on official data on registered employment and unemployment

Ecowin/Reuters

2.2. Employment Annual percentage change, Labour Force Survey definition for annual data. Monthly and quarterly data are based on official data on registered employment and unemployment

Ecowin/Reuters

2.3. Wages Annual percentage change; average gross wages (nominal amount in kuna)

Ecowin/Reuters

3. International Transactions

3.1. Exports of goods Annual percentage change, mio. HRK, fob. Customs reports used for monthly data. Central Bank's otherwise.

Ecowin/Reuters

3.2. Imports of goods Annual percentage change, mio. HRK, cif Customs reports used for monthly data. Central Bank's otherwise.

Ecowin/Reuters

3.3. Trade balance In percent of GDP, fob-cif Ecowin/Reuters

3.4. Exports goods and services In percent of GDP, volume (1997 prices) Ecowin/Reuters

3.5. Imports goods and services In percent of GDP, volume (1997 prices) Ecowin/Reuters

3.6. Current account balance In percent of GDP, rolling four quarter for quarterly data Ecowin/Reuters

3.7. Direct investment (FDI, net) In percent of GDP, annualised data Ecowin/Reuters

4. Prices

4.1. Interim CPI Annual average percentage change, HICP not yet available for Croatia Ecowin/Reuters

4.2. GDP deflator Annual percentage change Ecowin/Reuters

4.3. Producer prices Annual percentage change, without construction, index 2001 Ecowin/Reuters

4.4. Import prices Not available N.A.

5. Monetary and financial indicators

5.1. Interest rate Zagreb Interbank 3 month - middle rate Ecowin/Reuters

5.2. Bond yield Not available N.A.

5.3. Stock markets CROBEX index Ecowin/Reuters

5.4. M4 Annual percentage change, M4 (Broadest money) Ecowin/Reuters

5.5. Exchange rate HRK/EUR Period averages, midpoint exchange rates Ecowin/Reuters

5.6. Nominal eff. exchange rate Index 2001, period averages Ecowin/Reuters

6. Government balance and debt

6.1. General government balance In percent of GDP Nat. sources

6.2. General government debt In percent of GDP Nat. sources

38

THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA

Explanatory notes



1.1. Industrial confidence indicator Not available

1.2. Industrial production Annual percentage change, volume, excluding construction SSO

1.3. Gross domestic product Annual percentage change, volume (previous year prices) SSO

1.4. Consumer confidence indicator Not available

1.5. Private consumption Annual percentage change, volume (previous year prices) SSO

1.6. Gross fixed capital formation Annual percentage change, volume (previous year prices) SSO

1.7. Change in stocks In percent of GDP, volume (previous year prices) SSO

2. Labour market

2.1. Unemployment In percent of total labour force, Labour Force Survey definition for annual data, registered otherwise SSO

2.2. Employment Annual percentage change, Labour Force Survey definition for annual data, registered otherwise SSO

2.3. Wages Annual percentage change; average gross wages (nominal amount in Denar) SSO


3.1. Exports of goods Annual percentage change, fob NBRM

3.2. Imports of goods Annual percentage change, cif NBRM

3.3. Trade balance In percent of GDP, fob-cif NBRM

3.4. Exports goods and services In percent of GDP, volume SSO

3.5. Imports goods and services In percent of GDP, volume SSO

3.6. Current account balance In percent of GDP, rolling four quarter for quarterly data NBRM

3.7. Direct investment (FDI, net) In percent of GDP, annualised data NBRM

4. Prices

4.1. CPI Annual average percentage change, HICP not yet available for fYRoM SSO/Ecowin/ Reuters

4.2. GDP deflator Annual percentage change SSO

4.3. Producer prices Annual percentage change, industrial products SSO

4.4. Import prices Not available SSO


5.1. Interest rate Interest rate Denar deposits NBRM

5.2. Bond yield Not available NBRM

5.3. Stock markets MSE Index (MBI-10) Macedonian SE

5.4. M4 Annual percentage change, M4 (Broadest money) NBRM

5.5. Exchange rate MKD/EUR Averages, spot close Ecowin/Reuters

5.6. Nominal eff. exchange rate


6.1. General government balance In percent of GDP MoF

6.2. General government debt In percent of GDP MoF

39

TURKEY Explanatory notes



1.1. Industrial confidence indicator Industry survey, confidence index real sector Nat. sources

1.2. Industrial production Annual percentage change, volume (index 1997), excluding construction Ecowin/Reuters

1.3. Gross domestic product Annual percentage change, volume (1987 prices) Ecowin/Reuters

1.4. Consumer confidence indicator Consumer tendency survey Nat. sources

1.5. Private consumption Annual percentage change, volume (1987 prices) Ecowin/Reuters

1.6. Gross fixed capital formation Annual percentage change Ecowin/Reuters

1.7. Change in stocks In percent of GDP Ecowin/Reuters

2. Labour market

2.1. Unemployment In percent of total labour force, Labour Force Survey data Ecowin/Reuters

2.2. Employment Annual percentage change, Labour Force Survey data Ecowin/Reuters

2.3. Wages Annual percentage change; index of real earning per production worker in manufacturing industry

Nat. sources


3.1. Exports of goods Annual percentage change, mio. EUR, fob Ecowin/Reuters

3.2. Imports of goods Annual percentage change, mio. EUR, cif Ecowin/Reuters

3.3. Trade balance In percent of GDP, annualised moving average Ecowin/Reuters

3.4. Exports goods and services In percent of GDP Ecowin/Reuters

3.5. Imports goods and services In percent of GDP Ecowin/Reuters

3.6. Current account balance In percent of GDP, annualised moving average Ecowin/Reuters

3.7. Direct investment (FDI, net) In percent of GDP, annualised moving average of direct investment in reporting economy minus direct investment abroad

Ecowin/Reuters

4. Prices

4.1. CPI Annual percentage change, index 1994, Interim HICP is not available Ecowin/Reuters

4.2. GDP deflator Annual percentage change Ecowin/Reuters

4.3. Producer prices Annual percentage change, wholesale prices index (1994) Ecowin/Reuters

4.4. Import prices Annual percentage change, index (1994) Ecowin/Reuters


5.1. Interest rate Deposit rates, 3 month, close Ecowin/Reuters

5.2. Bond yield T-bond ISMA bid, 2 year, yield, close Ecowin/Reuters

5.3. Stock markets ISE index, trading volume (business), January 1986 = 1 Turkish Lira Ecowin/Reuters

5.4. M3 Annual percentage change Ecowin/Reuters

5.5. Exchange rate YTL/EUR Period averages Eurostat

5.6. Nominal eff. exchange rate Index 1999, period averages Eurostat


6.1. General government balance In percent of GDP Nat. sources

6.2. General government debt In percent of GDP, ESA 95 methodology Nat. sources

40

ALBANIA Explanatory notes




1.2. Industrial production Not available

1.3. Gross domestic product Annual percentage change, volume. Annual data Ecowin/Reuters


1.5. Private consumption Not available

1.6. Gross fixed capital formation Not available

1.7. Change in stocks In percent of GDP. Annual data Ecowin/Reuters

2. Labour market

2.1. Unemployment In percent of total labour force Ecowin/Reuters

2.2. Employment Annual percentage change Ecowin/Reuters

2.3. Wages Average monthly wages in State sector Ecowin/Reuters


3.1. Exports of goods Annual percentage change, mio. EUR Ecowin/Reuters

3.2. Imports of goods Annual percentage change, mio. EUR Ecowin/Reuters

3.3. Trade balance In percent of GDP Ecowin/Reuters

3.4. Exports goods and services In percent of GDP. Annual data Ecowin/Reuters

3.5. Imports goods and services In percent of GDP. Annual data Ecowin/Reuters

3.6. Current account balance In percent of GDP, including official transfers Ecowin/Reuters

3.7. Direct investment (FDI, net) In percent of GDP Ecowin/Reuters

4. Prices

4.1. Interim CPI Consumer Prices, All items, Total. Annual percentage change

Up to 2007 Dec2001 = 100, 2007 onwards Dec2007 = 100.

Ecowin/Reuters

4.2. GDP deflator Implicit GDP deflator. Annual percentage change

4.3. Producer prices Annual percentage change, Total, index (1998) Ecowin/Reuters

4.4. Import prices Not available


5.1. Interest rate Treasury Bills, 3 Month Auction, Yield Ecowin/Reuters

5.2. Bond yield Government Benchmarks, 2 Year Bond, Yield Ecowin/Reuters

5.3. Stock markets Not available

5.4. M2 Annual percentage change Ecowin/Reuters

5.5. Exchange rate LEK/EUR Period averages Ecowin/Reuters

5.6. Change in real eff. exchange rate

Not available


6.1. General government balance In percent of GDP IMF

6.2. General government debt In percent of GDP IMF

41

BOSNIA AND HERZEGOVINA Explanatory notes




1.2. Industrial production Entity indices weighted by shares in GDP NSI

1.3. Gross domestic product Annual percentage change Ecowin/Reuters


1.5. Private consumption Annual percentage change, Households, Total, 2004=100 Ecowin/Reuters

1.6. Gross fixed capital formation Annual percentage change Ecowin/Reuters

1.7. Change in stocks In percent of GDP Ecowin/Reuters

2. Labour market

2.1. Unemployment Registered, in percent of total labour force Ecowin/Reuters

2.2. Employment Registered, annual percentage change Ecowin/Reuters

2.3. Wages Annual percentage change, average gross wages, BAM Ecowin/Reuters


3.1. Exports of goods Annual percentage change, mio. BAM, General merchandise, FOB Ecowin/Reuters

3.2. Imports of goods Annual percentage change, mio. BAM, General merchandise, FOB Ecowin/Reuters

3.3. Trade balance In percent of GDP, annualised data Ecowin/Reuters

3.4. Exports goods and services In percent of GDP, estimated from Balance of Payments data Ecowin/Reuters

3.5. Imports goods and services In percent of GDP, estimated from Balance of Payments data Ecowin/Reuters

3.6. Current account balance In percent of GDP, annualised data Ecowin/Reuters


4. Prices

4.1. CPI Consumer price index from 2006; Retail price index otherwise. CBBH/ Ecowin/Reuters

4.2. GDP deflator Implicit GDP deflator. Annual percentage change

4.3. Producer prices Not available



5.1. Interest rate Not available

5.2. Bond yield Not available

5.3. Stock markets Sarajevo SE, Index Ecowin/Reuters

5.4. M2 Annual percentage change, M2 (broadest money) Ecowin/Reuters

5.5. Exchange rate BAM/EUR Period averages, spot rates, close Ecowin/Reuters

5.6. Nominal eff. exchange rate Index (2002 Apr=100); 9 Trade partners selected in order to set up the index (Austria, France, Germany, Hungary, Italy, Slovenia, Croatia, Serbia and Switzerland)

Ecowin/Reuters


6.1. General government balance In percent of GDP. Certain local level data not included CBBH

6.2. General government debt External public debt only CBBH

42

MONTENEGRO Explanatory notes




1.2. Industrial production Annual percentage change Ecowin/Reuters

1.3. Gross domestic product Annual percentage change, annual data, chain index MONSTAT


1.5. Private consumption Annual percentage change, annual data, chain index MONSTAT

1.6. Gross fixed capital formation Annual percentage change, annual data, chain index MONSTAT

1.7. Change in stocks Annual percentage change, annual data MONSTAT

2. Labour market

2.1. Unemployment In percent of active population Ecowin/Reuters

2.2. Employment Annual percentage change of registered employment Ecowin/Reuters

2.3. Wages Annual percentage change, average gross wages (nominal, in EUR) Ecowin/Reuters


3.1. Exports of goods Annual percentage change, thou. EUR Ecowin/Reuters

3.2. Imports of goods Annual percentage change, thou. EUR Ecowin/Reuters

3.3. Trade balance In percent of GDP, annualised data Ecowin/Reuters

3.4. Exports goods and services Annual data MONSTAT

3.5. Imports goods and services Annual data MONSTAT

3.6. Current account balance In percent of GDP, annualised data Ecowin/Reuters


4. Prices

4.1. Interim CPI Cost of living index, annual average percentage change, moving base year

Ecowin/Reuters

4.2. GDP deflator Implicit GDP deflator. Annual percentage change Ecowin/Reuters

4.3. Producer prices Annual percentage change Ecowin/Reuters



5.1. Interest rate Treasury Bills, 3 Month, auction, yield, average Ecowin/Reuters

5.2. Bond yield Treasury Bills, 6 Month, auction, yield, average Ecowin/Reuters

5.3. Stock markets NEX20 Index, Close Ecowin/Reuters

5.4. M21 Annual percentage change, M21 (Broadest money) Ecowin/Reuters

5.5. Exchange rate EUR/EUR Use of the Euro since March 2002

5.6. Nominal exchange rate Not available


6.1. General government balance In percent of GDP Min. of Finance

6.2. General government debt In percent of GDP Min. of Finance

43

SERBIA Explanatory notes




1.2. Industrial production Annual percentage change, total, 2005=100, SA, Index SORS

1.3. Gross domestic product Annual percentage change at constant (average) prices 2002 Production approach

SORS

1.4. Consumer confidence indicator Not available.

1.5. Private consumption Not available

1.6. Gross fixed capital formation Not available

1.7. Change in stocks In percent of GDP SORS

2. Labour market

2.1. Unemployment In percent of total labour force, Labour Force Survey definition for annual data. Monthly and quarterly data are based on annual LFS and adjusted on the basis of monthly/quarterly changes of data on registered unemployment.

SORS

2.2. Employment Annual percentage changes are based on LFS. Monthly and quarterly percentage changes (period of year in relation to the same period of previous year) data are based on official data on registered employment.

SORS

2.3. Wages Gross wages annual percentage change; average growth rate, nominal SORS


3.1. Exports of goods Annual percentage change, mio. USD, fob SORS

3.2. Imports of goods Annual percentage change, mio. USD, cif SORS

3.3. Trade balance In percent of GDP, fob-cif, annualised data SORS, Ecowin

3.4. Exports goods and services In percent of GDP NBS

3.5. Imports goods and services In percent of GDP NBS

3.6. Current account balance In percent of GDP, annualised data NBS, Ecowin

3.7. Direct investment (FDI, net) In percent of GDP, annualised data NBS, Ecowin

4. Prices

4.1. Interim CPI Annual average percentage change, retail prices, total, index (2005) SORS

4.2. GDP deflator Implicit GDP deflator. Annual percentage change SORS

4.3. Producer prices Annual percentage change, total, index (2000) SORS

4.4. Import prices Annual percentage change, total SORS


5.1. Interest rate Treasury Bills, 3 month, yield, average, RSD NBS

5.2. Bond yield Not available

5.3. Stock markets Belgrade Stock Exchange, BELEXfm index, price return, close, RSD Ecowin/Reuters

5.4. M3 Annual percentage change, M3 (broad money), RSD NBS

5.5. Exchange rate RSD/EUR Spot Rates, close, period average Ecowin/Reuters

5.6. Nominal eff. exchange rate Period average, moving base year, RSD NBS


6.1. General government balance Consolidated GG, Overall balance including grants. In percent of GDP MoF

6.2. General government debt Public sector debt. In percent of GDP MoF

SORS: Statistical Office of the Republic of Serbia, NBS: National Bank of Serbia, MoF: Serbian Ministry of Finance

44

KOSOVO* *as defined by UNSCR 1244

Explanatory notes



1.1. Industrial confidence indicator Not available. 1.2. Industrial production Not available. 1.3. Gross domestic product Annual percentage change. IMF 1.4. Consumer confidence indicator Not available. 1.5. Private consumption Annual percentage change. IMF 1.6. Gross fixed capital formation Annual percentage change. IMF 1.7. Change in stocks Not available.

2 Labour market 2.1. Unemployment In percent of total labour force. Statistical Office

of Kosovo (SOK) 2.2. Employment Annual percentage change of number of employees according to the Tax

Register. Statistical Office of Kosovo (SOK)

2.3. Wages Annual percentage change, average monthly wages according to the Tax Register.

Statistical Office of Kosovo (SOK)

3. International Transactions 3.1. Exports of goods Annual percentage change. Statistical Office

of Kosovo (SOK) 3.2. Imports of goods Annual percentage change. Statistical Office

of Kosovo (SOK) 3.3. Trade balance In percent of GDP. Statistical Office

of Kosovo (SOK) 3.4. Exports goods and services In percent of GDP. IMF 3.5. Imports goods and services In percent of GDP. IMF 3.6. Current account balance In percent of GDP, Annual data. Central Banking

Authority (CBAK) 3.7. Direct investment (FDI, net) In percent of GDP, Annual data. CBAK

4. Prices 4.1. Interim CPI Annual average percentage change, index (May 2002 = 100) Statistical Office

of Kosovo (SOK) 4.2. GDP deflator Annual percentage change. IMF 4.3. Producer prices Not available. 4.4. Import prices Not available.

5. Monetary and financial indicators 5.1. Interest rate Interest rates, short-term (3-12 months loans to non-financial

corporations) CBAK

5.2. Bond yield Not available. 5.3. Stock markets Not available. 5.4. M2 Annual percentage change, M2 (Broadest money) CBAK 5.5. Exchange rate EUR/EUR Not applicable. 5.6. Nominal eff. exchange rate Not available. IMF

6. Government balance and debt 6.1. General government balance In percent of GDP IMF, Ministry of

Finance and Economy

6.2. General government debt Not applicable.

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