Bosnia Herzegovina Business Forecast Report Q3 2009

Publication Date	May 2009
Publisher	Business Monitor
Product Type	Report
Pages	58
ISBN Number	1748-2380
Product Code	BMI03897

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Summary

2009 To Prove Key Test Of Stability Bosnia-Herzegovina will not be able to escape the global recession. In light of the deteriorating economic outlook across the region, which will weigh heavily on external demand for exports, in addition to leading to a precipitous drop off in remittance inflows, we have revised down the country's 2009 real GDP growth forecast to -3.0%, and project only a slight recovery for positive growth of 1.5% in 2010. Moreover, as economic activity continues to unwind, we are particularly concerned about the prospects for political stability in the Western Balkan state, as surging unemployment leads to an elevated risk of public unrest and weighs heavily on the government's ability to carry out an appropriate economic policy framework in dealing with the emerging recession. As a consequence, policy formation will remain impaired through the medium term, further slowing Sarajevo's efforts at greater integration with the EU.

Ending weeks of uncertainty, the international body which overseas Bosnia-Herzegovina's peace process, the Peace Implementation Council, approved Austrian diplomat Valentin Inzko as the country's new High Representative (HR) on March 13. Inzko takes over the post left vacant by the previous HR, Miroslav Lajcak, who resigned from the position in January following his appointment as foreign minister of Slovakia. While we are encouraged that the power vacuum created following Lajcak's departure has now been filled, we caution that Bosnian political stability will remain precarious. Indeed, the ongoing presence of the OHR confirms our view that Bosnia's progress across a wide swath of economic and political reforms has been insufficient to date.

The outlook for Bosnia-Herzegovina's labour market continues to deteriorate. According to the Labour and Employment Agency of Bosnia and Herzegovina, the economy registered its third consecutive month of net job losses in January, with the total number of registered unemployed persons across the country spiking to 488,498. This resulted in a 1.1% increase in official unemployment compared to December - the single largest month-on-month spike in two years. We forecast the official unemployment rate climbing to 30.0% by end-year, up from 23.4% and 29.0% at end-2008 and 2007 respectively. That said, we caution that the headline figure will continue to mask significant regional variations through the country, with the labour situation likely to remain relatively more precarious in the Federation and Brcko district (the end-2008 unemployment rates for the Federation, Serb Republic and Brcko district were 25.0%, 20.5%, and 31.9% respectively).

The first shopping centre in the Balkans operating on Islamic principles opened on April 6 in the Bosnian capital of Sarajevo. In addition to containing the regular selection of retail shops and restaurants, the luxury centre, which is set to host approximately 100 businesses, will also have a prayer room and ban both alcohol and gambling. BBI Leasing & Real Estate, which is jointly owned by the Islamic Development Bank, Dubai Islamic Bank, and Abu Dhabi Islamic Bank, invested approximately BAM80mn (US$55mn) into the centre. Though Bosnia is considered a relatively secular state, with Muslims making up approximately 40% of the population, recent years have seen an uptick in demand for both retail and banking services run along Islamic principles.

Content

Executive Summary
- 2009 To Prove Key Test Of Stability
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- OHR To Stay In Place Through 2009
- Although we are encouraged by the appointment of Valentin Inzko as Bosnia-Herzegovina's new High Representative,
- we caution that a great deal of uncertainty remains over how effective he will be in his new position.
- Foreign Policy
- European Integration To Remain Fraught With Difficulties
- We do not believe Bosnia-Herzegovina's goal of obtaining official EU candidate status before the end of 2009 is likely.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Outlook
- Economic Activity
- Recession Ahead, Convergence Delayed
- In light of the deteriorating economic outlook across emerging Europe, we have revised down Bosnia's 2009 real GDP
- growth forecast, which we now project to come in at -3.0%.
- Balance Of Payments
- Financial Account To Remain Under Pressure
- We forecast Bosnia-Herzegovina's current account deficit to narrow sharply to 9.0% of GDP in 2009, down from 14.4%
- in 2008.
- Monetary Policy
- Price Pressures To Remain Subdued, Currency Board To Hold
- We have revised down our end-2009 inflation forecast to 1.5% y-o-y.
- Labour Market
- Surging Unemployment Poses Key Risk To Stability
- In light of the increasingly sour outlook for Bosnia-Herzegovina's economy in 2009, with real GDP projected to contract
- by 3.0%, we forecast the official unemployment rate surging to 30.0% by the end of the year, up from 23.4% at end-2008.
- Regional Economic Outlook
- Asia 1998 vs CEE 2009/2010: CEE Will Be Worse
- While there are similar dynamics worth considering, we believe that a comparison between the Asian financial crisis in
- 1997-1998 and Central and Eastern Europe (CEE) in 2008-2009 holds only limited value.
- Regional Economic Forecast
- Beyond 2010: The Aftermath Of A Crisis
- In the aftermath of the CEE financial and economic crisis, we see trend growth settling at a lower rate over the long term,
- weighed by the marked slowdown in credit expansion, continued deleveraging, and a need to correct the region's
- substantial external asymmetries.
Chapter 3: 10-Year Forecast
- The Bosnian Economy To 2018
- Political Tensions To Slow Economic Convergence
- Bosnia's economic and political convergence will continue to be hampered by underlying interethnic tensions in the country.
Chapter 4: Special Report
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: BMI Global Assumptions
- Global Outlook
List of Tables
- Table: Bosnia Political Overview
- Table: ECONOMIC ACTIVITY
- Table: BALANCE OF PAYMENTS (Euro)
- Table: MONETARY POLICY
- Table: BOSNIA-HERZEGOVINA Long-Term Macroeconomic Forecasts
- Table: LOAN -TO-DEPOSIT RATIOS, Selected States
- Table: LOAN GRO WTH (% CHG Y-O-Y), Selected States
- Table: COMMERCIAL BANKING BUSINES ENVIRONMENT RATINGS, SELECTED STATES
- Table: BMI BUSINES AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: Europe, FDI Annual Inflows
- Table: BMI TRADE RATINGS
- Table: TOP EXPORT DESTINATIONS
- Table: GLOBAL ASUMPTIONS
- Table: GLOBAL ASUMPTIONS - LONG -TERM FORECASTS
- Table: Developed States, Real GDP Growth Forecast
- Table: EMERGING MARKETS, REAL GDP GRO WTH FORECAST
- Table: Commodities
- Table: GLOBAL & REGIONAL REAL GDP GRO WTH