Serbia and Montenegro Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	82
ISBN Number	1746-5796
Product Code	BMI03512

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Summary

Serbia: Difficult Times Ahead

We are growing increasingly concerned about the impact of the worsening global economic outlook on the Serbian economy in 2009 and 2010. We now project an economic contraction of 1.6% in 2009, with a marginal recovery to growth of 1.2% forecast for 2010. That said, we hold to our medium-term positive outlook on the Serbian economy and expect growth to average 4.2% between 2011-2013. We believe the Serbian government's commitment to improving ties with euro-Atlantic institutions, particularly the European Union, will encourage improvements to the country's business environment. A further factor that will boost the interest of foreign investors in the country are the planned improvements to infrastructure, which will enable easier access to the markets of neighbouring countries. Going forward, we continue to see the issue of Kosovo's unilateral declaration of independence as posing an elevated risk to the country through at least the medium term.

The issue of Kosovo's unilateral declaration of independence continues to pose a threat to the stability of Serbia's fragile coalition government, comprising the Democratic Party and the Socialist Party. Indeed, a debate was held in the Serbian parliament on December 19 to discuss a no-confidence motion tabled by opposition parties. The Serb Radical Party and the Democratic Party of Serbia accused the government of 'abandoning Kosovo' by agreeing to the deployment of an EU police and justice mission (EULEX) in Kosovo. While voting on the motion was postponed due to the absence of a quorum, the tabling of the motion nevertheless indicates that the Kosovo issue will remain key to Serbia's relations with the EU through the medium term.

We forecast the Serbian economy to contract by 1.6% in 2009, following an estimated 5.4% expansion in 2008. Our projection for Serbian growth in 2009 is significantly below the 3.5% expansion forecast by the IMF and the Serbian government. Supporting our view, the Governor of the National Bank of Serbia, Radovan Jelasic, stated on February 13 that the Serbian economy shrank by 3.0% year-on-year (y-o-y) in Q4 resulting in a full-year figure for 2008 of 5.5% (0.1 percentage point away from BMI's forecast). We expect the difficult environment for the Serbian economy to continue through 2009, with signs of a recovery projected in the latter half of 2010, and a marked recovery forecast for 2011 - with growth projected at 3.5%.

Serbia's police and intelligence agencies arrested 17 people from the ministry of defence on February 10 on suspicion of fraud, embezzlement and abuse of office. The ministry released a statement claiming that the group was believed to have forged documents that allowed people to use military housing and to claim pensions based on alleged participation in the Yugoslav wars. If convicted, the 17 individuals could face up to 15 years in jail. We believe this is a positive sign of the Serbian government's commitment to tackle organised crime and corruption, and should help to further improve ties with the EU. The country ranks 85 (out of 180 countries) in Transparency International's 2008 Corruption Perception Index.

Content

Executive Summary
- Serbia: Difficult Times Ahead
Chapter 1: Serbia Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Relations With Kosovo To Remain Problematic
- We do not expect a fundamental shift in Serbian-Kosovan relations in the medium term and we do not believe
- Serbia will recognise Kosovan independence any time soon.
- TAB LE: SERBIAN POLITICAL STRUCTURE
- Foreign Policy
- Pursuit Of Closer Links To The EU To Continue
- While a vote of no-confidence in the Serbian parliament on the pro-Western government's approach to Kosovan
- independence has been postponed, we expect the Kosovo issue to remain key for the foreseeable future.
Chapter 2: Serbia Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Introduction
- Additional IMF Financing Likely
- We expect Serbia will apply for additional funding from the IMF.
- Economic Activity
- Recession Expected In 2009
- We have revised down our Serbian growth forecast for 2009, and now project a 1.6% contraction (compared to our
- previous expectation of a 0.8% expansion).
- Monetary Policy
- Exchange Rate Policy
- Fiscal Policy
Chapter 3: 10-Year Forecast
- The Serbian Economy To 2018
- EU Convergence Key To 10-Year Growth Outlook
- We forecast that Serbian growth will slow yet remain robust over our 10-year forecast period. Policy convergence with
- the EU will be a fundamental factor driving growth.
Chapter 4: Serbia Business Environment
- SWOT Analysis
- BMI Business Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- TAB LE: EURO PE, FDI ANNUAL INFLOWS
- Market Orientation
- Operational Risk
Chapter 5.1: Montenegro Political Outlook
- SWOT Analysis
- Domestic Politics
Chapter 5.2: Montenegro Economic Outlook
- SWOT Analysis
- Economic Activity
- SWOT Analysis
Chapter 5.3: Montenegro Business Environment
- Introduction
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political upheaval
- in China.
- United States
- Europe
- TAB LE: Exposure As % of National GDP
Chapter 7: Key Sectors
- Food & Drink
- Global
List of Tables
- TABLE: ECONOMIC ACTIVITY
- TABLE: SERBIA - MONETAR Y POLICY
- TABLE: SERBIA - FISCAL POLICY
- TABLE: SERBIA - LONG-TERM MACROECONOMIC FORECASTS
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- TABLE: LABOUR FORCE QUALITY
- TABLE: BMI TRADE RATING S
- TABLE: MONTENEGRO POLITICAL STRUCTURE
- TABLE: MONTENEGRO - ECONOMIC ACTIVITY
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- TABLE: LABOUR FORCE QUALITY
- TABLE: EURO PE, FDI ANNUAL INFLOWS
- TABLE: BMI TRADE RATING S
- Table: Banks ' Leverage Ratios
- Table: Assets As % of Home Country GDP
- Table: Assets As % of Home Country GDP When Euro zone Is Considered 'Home Country'
- Table: Exposure As % of Total Exposure To Region
- Table: Banks' Foreign Exposure (US$ mn )
- Table: Serbia Mass Grocery Retail Sales by Format (US$bn )
- Table: Global Assumptions
- Table: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Table: Developed States, Real GDP Growth Forecasts
- Table: Emerging Markets , Real GDP Growth Forecasts
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- TABLE: EMERGING MARKET EXCHANGE RATES