Monthly Economic Report

Bosnia & Herzegovina

Issue: No 1 December 2011

Content

Bosnia&Herzegovina
Economic Report
HIGHLIGHTS ............................................................................................................ 3 POLITICS .................................................................................................................. 4 REAL ECONOMY ...................................................................................................... 5
Real economy in Bosnia and Herzegovina

INFLATION ............................................................................................................... 7 FISCAL POLICY ....................................................................................................... 8 BANKING SECTOR................................................................................................... 9 EQUITY AND DEBT MARKET ................................................................................ 10 ECONOMIC OUTLOOK ........................................................................................... 11 IMPRESSUM .......................................................................................................... 12

Highlights

B&H Credit rating

Credit rating LT Date Activity S&P Moody's Rating Outlook Rating Outlook B Negative B2 Negative December-11 Declined May-11 Confirmed

Highlights
No end in sight to B&H longest institutional crisis in post-war period as country hits 15 month without formed State Government. Due to political dead-lock, 2011 is already declared as year of stagnation regarding the EU membership road Serious slowing down of positive momentum in European economy seen in Q3 took its first impacts on BH economy. As expected, firstly were hit exports and export-oriented industrial production. Real GDP growth of 1.9% yoy is expected in 2011 which should be accomplished due to strong rebound of export and industrial output in first semester of 2011. Inflation level eased to some extend in Oct.11 (+3.7% yoy) but still threatens to reaccelerate by the end of year. For 2012, we expect overall inflation to ease down to feeble level of 2.3% yoy mostly due to global economic slowdown Fiscal deficits in FB&H and RS in Q3 2011 mostly in line with our expectations B&H banking sector as of 30.09.2011 reported net profit of BAM 82.1 million. At the same time, credit and deposit performance continue to strengthen in Q3 2011, while first signs of slowing down in the credit performance we can expect by the end of 2011 Total turnover on B&H markets fuelled by primary markets developments (public offering of bonds and T-bills) Taking into account negative trends of main drivers of economic growth, B&H is facing stagnation in 2012 reflected in forecasted 0% yoy real GDP growth

Source: Raiffeisen RESEARCH

Economic growth of B&H

Source: Agency for Statistics of B&H Raiffeisen RESEARCH

Analyst: Ivona Kristi, Srebrenko Fatui Tel.: +387 33 287 784 e-mail: ivona.kristic@rbb-sarajevo.raiffeisen.at srebrenko.fatusic@rbbsarajevo.raiffeisen.at Published by: Raiffeisen BANK d.d. BiH Investment Banking Research & Analysis Department, 71 000 Sarajevo, Zmaja od Bosne bb

Source: Agency for Statistics of B&H, Central Bank of B&H, Raiffeisen RESEARCH

Politics
)

No end in sight to B&H longest

Institutional crisis in post-war period
Key political persons in B&H
The High representative for B&H EU Special Representative in B&H Three-member Presidency Valentin Incko Peter Sorensen eljko Komi (chairman) Neboja Radmanovi Bakir Izetbegovi Nikola piri (Tehnical mandate)

State Prime Minister Federation of B&H President First Vice-President Second Vice-President Prime Minister Republic of Srpska President First Vice-President Second Vice-President Prime Minister

Bosnia and Herzegovina hits 15 month without completed process of the State Government forming (Council of Ministers), as political leaders failed to reach an agreement on inaugurating of the State Council of Ministers. Therefore, after Belgium appointed the new Government during last month, B&H left as the only one without the official government in Europe. Despite numerous failed attempts to form a coalition government at the State level, B&H key political parties remained on their firm standpoints, further deepening the political crisis. The political leaders of 6 biggest parties (SDP, SDA, SNSD, SDS, HDZ, and HDZ 1990) without which the new Government cant be establish are still showing lack of will to achieve the compromise over the split of seats in the new State Government. The last meeting of the key political figures was held in Italian town of Cadenabbia on Lake Como, where the Konrad Adenauer Foundation organized at its political academy a seminar on the constitutional structure of Bosnia and Herzegovina. The meeting of the six political leaders was also expected to provide an opportunity for talks on the establishment of a new Central government. However, political leaders once again have not been able to agree. After the last afford to reach an agreement failed, B&H political analysis predicts two possible scenarios if the political stalemate continues. Theoretically, this situation may continue until the October of 2014, when B&H will hold the next parliamentary elections. The State Constitution does not contain any provisions as to how to get out of this crisis. By second scenario we can expect the extraordinary elections for the State Parliament. All in all, both scenarios are still not our basic scenario, as we expect that political heads will finally find the middle ground under the pressure of the International Authorities. Political stalemate, in which B&H plunged since the last Octobers general elections, worsened the EU perspective and placed the country on margins of all EU and International integrations. This was officially confirmed by the latest Annual EU Progress Report on B&H published by the European Commission (EC). The EC report particularly underlined lack of common political vision related to EU progress. According to the report, B&H also achieved just marginal result in area of human rights, jurisdiction, press freedom, while progress toward functional market economy is negligible and B&H must implement huge strategic reforms in order to became capable for responding the EU markets conditions. Hence, B&H still have to fulfill 3 conditions (Law on census, Law on State Help and Harmonization of the Constitute with the European Convection on Human Rights) in order to acquiring the EU Candidate Status over which the key political parties are still deeply divided. Accordingly, 2011 is already declared as year of stagnation regarding the EU membership road.

ivko Budimir (HSP) Mirsad Kebo (SDA) Svetozar Pudari (SDP) Nermin Niki (SDP)

Milorad Dodik (SNSD) Emil Vlajki (NDS) Enes Suljkanovi (SDP) Aleksandar Dombi (SNSD)

Source: Raiffeisen RESEARCH

Key political parties in B&H

Social Democratic Party (SDP) Party of Independent Social Democrats (SNSD) Party of Democratic Action (SDA) Croation Democratic Union (HDZ) Serbian Democratic Party (SDS) Croatian Democratic Union 1990 (HDZ 1990) Peoples Party - Working for Better Croation Party of Rights (HSP) Future (NSRZB) Opposition Parties Alliance for better future (SBB) Party of Democratic Progress (PDP) for Bosnia and Herzegovina (SBiH) Democratic People's Party (DNZ) Democratic People's Alliance (DNS) Left Left - Center Right Right Right Right Right Left Right - Center Center Right Right Center

Source: Raiffeisen RESEARCH

No progress towards EU membership

Source: Raiffeisen RESEARCH

Real Economy

Slowing down in European economies

took its first impact on B&H economy
Industrial production (yoy)
Industrial production and construction sector After industrial production delivered first signs of slowing-down in August 2011 (+4.5% yoy) and in September (+1.8% yoy), positive momentum almost diminish in October 2011 as industry reported growth by mild 0.6% yoy, which represents the lowest increase in 12 months. Fading base affect and worsening of the global economic momentum mutually contribute to lower industrial statistics while decreasing trend seems not to be temporary. Thus, in October 2011, Mining and quarrying and Electricity gas and water supply evidenced positive growth rate by +3.1% yoy and +4.1% yoy while at the same time Manufacturing evidenced negative sentiment declining by 0.9% yoy. The slump of Manufacturing was mostly affected by the gradual diminish of the foreign demand for B&H industrial goods which amplified the favorable industrial statistics in last 2 years. Accordingly, industrial output in overall terms continue to slide and stood at +6.1% yoy for period Jan-Oct 2011 but with all three sections in expansion: Mining and quarrying +18.5% yoy, Manufacturing +4.7 and Electricity, gas and water supply +4.3% yoy. Nevertheless, by the end of 2011 we envisage further slowdown of industrial output due to lacking of external demand which has paramount importance for the industrial statistics. Although, the rejuvenate risk of the global recession could bring some volatile rates in Q4 2011, we remain positive on overall drift of industrial production (+6.5% yoy) solely owed to rapid performance in the first semester of 2011. The construction sector which mostly suffered during the global recession, after two years of recession finally reported first signs of recovery in 2011. However, statistics on construction sector is switching the opposite sides from month to month. Furthermore, after negative performance reported in September 2011 in both, (FB&H and RS), value of performed construction works in October 2011 once again was greenish (+11.7% yoy in FB&H and 5.5% in RS). Hence, we do expect mild positive contribution of the construction sector to GDP growth in 2011 mostly due to low statistics base. However, the revival of the construction remains fairly pessimistic in year to come, as political stalemate is repealing considerable investments in construction and delaying major public infrastructural projects (Corridor Vc, new hydro-plants building). Foreign trade The foreign trade of B&H which brightened the macroeconomic picture of the country in recent period is still lively although the weaker foreign demand will definitely take its toll in month to come. Analyzing the quarterly statistics on B&H export, the downward trend was notable already in Q3 2011 when exports grew by 13% yoy

Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Contruction sector vs industrail output

Source: State and Entity Agencies for Statistics, Raiffeisen RESEARCH

Labor market figures

Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Real Economy

Real GDP of 1.9% yoy is expected in 2011

due to strong rebound in H1 of 2011
B&H trade balance (yoy)
. which is the lowest quarterly growth rate since the end of 2009. In October 2011, exports kept its rapid growth on yoy level (+17% yoy) while at the same time reported monthly decline by 5% which represents the largest monthly fall in 2011. Consequently, in 10 months of 2011 total realized exports of goods amounted to BAM 6.8 billion (+17.4% yoy) benefiting by the strong figures in Mineral products, Base metals Machinery and mechanical appliances which accounts to more than 50% of B&H export. The imports reported more or less the same dynamics, also showing first singes of calm-down in Q3 slipping to +10% yoy. In Oct-2011 imports grew by 15% yoy and declined by 2.2% compared to month before. Accordingly, in period Jan-Oct 2011 imports of goods reached value of BAM 12.8 bn (+15.2% yoy) with Mineral products, Machinery and Prepared foodstuff as key categories. Consequently, in 10 months of 2011, B&H trade deficit totaled to BAM 5.9 bn with export/import ration of 53.5%. Hence, taking into account the gloomy perspective of the global economy coupled with the unfavorable foreign trade structure of B&H (which depends on just few markets: Croatia, Germany, Italy and Serbia), it is evident that B&H will not be able to mitigate the slump of the foreign demand in period to come, while only question remain how strong the impact of the global slow-down will be on B&H export performance. However, due to rebound in first semester of 2011 we do not questioned the positive overall exports performance in 2011 which will outpace the imports figures and remain the key driver of the positive economic performance in 2011. Labor market and domestic consumption Despite quite robust economic performance in H1 2011, B&H did not manage to report any significant progress related to the labor market conditions as the major downside risk for the B&H economy. Furthermore, B&H has the highest official unemployment rate (43.4%) in Europe with outlook on further rising. At the same time, average gross and net wages continue to growth with single-digit growth rates (yoy) which are still bellow the inflation level. Average net wages in Sep 2011 stood at BAM 813 (+1.8% yoy) while average gross wages settled BAM 1,286 (+4.2% yoy). Therefore, revival of the domestic demand in 2011 will be limited to modest recovery of domestic consumption which is the leading category within the GDP. However, we reckon that domestic consumption will finally contribute to GDP growth in 2011 after two years of negative performance. Despite of the fragile labor market figures, other indicators shows a moderate expansion (retail trade, Indirect Tax Authority, Retail loans and remittances). Taking into account all above-mentioned trends of main drivers of private consumption, we expect to see positive drift by 2.5% yoy respectively. Hence, we estimate real GDP growth of 1.9% yoy in 2011 which should be accomplished due to strong rebound of exports and industrial production reported in first semester of 2011.

Source: Central Bank of B&H (CBBH), Raiffeisen RESEARCH

Retail trade and import figures (yoy)

Source: Entity Agencys for Statistics, CBBH, Raiffeisen RESEARCH

Key GDP categories (% yoy)

Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Inflation

Inflation level eased to some extend in Oct.11

But still threatens to reaccelerate by the end of year
Structure of consumer price index (%)
After reaching its peak in May 2011 (+4.2% yoy) the inflation pressure eased to some extend during next few months but still threatens to reaccelerate by the end of the year. Furthermore, the moderate improvement in the world markets which contributed to weakening of imported price pressure in Q2, was mostly compensated with hikes in gas (May) and electricity prices (July), keeping the inflation level on more or less the same level. Hence, in September 2011 inflation level peaked to 4.0% yoy followed by slight cooling-down to 3.7% yoy in October 2011. The lower inflation level reported in October 2011 is mostly result of the lower inflation pace in section Housing, water, electricity, gas and other fuels (+3.0% yoy) as result of the higher statistics base as in 2010 the electricity prices in October were calculated by higher (winter) tariffs. Consequently, the consumer prices in period, January October 2011 were higher by 3.7% yoy flavored by the hikes in Alcohol and tobacco products +8.1% yoy, Transport+ 7.5% yoy and Food and non-alcoholic beverages + 6.3% yoy. On the other hand, prices were lower in Clothing and footwear by 7.5% yoy and Health by 2.1% yoy. In months to come, due to new upward correction of natural gas prices (second time in 2011) coupled with earlier hike in electricity prices, we expect additional broad-base increase in all division within CPI structure by the principle of dominoeffect. The increase of natural gas prices by 13.89% (from 01th November 2011) will directly influence the Housing, water, electricity, gas and other fuels and Food and non-alcoholic beverages divisions which accounts to 59.4% of CPI basket. This will additionally hamper the Purchasing power of the B&H citizens which is among the lowest in Europe (27% of the EU average GDP in PPPs). Consequently, the price pressure coupled with the rising unemployment will mutually slow down the more prominent revival of personal consumption which will mostly benefiting from the low statistic base affect in previous years. Hence, we estimate that overall inflation pressure could peak to 4.0% yoy respectively, which is still moderate level compared to the estimated inflation levels from countries in region (Serbia - 11.3% yoy, Romania 5.9% yoy, Bulgaria 4.3% yoy, Albania 3.6% yoy Croatia 2.3% yoy). For 2012, we expect overall inflation to ease down to feeble level of 2.3% yoy due to global economic slowdown which will deliver much lower imported prices, particularly prices related to oil and mineral products which were the main supply-side factors of CPI growth in 2011. The additional one-off hikes on domestic supply side are not probable as well. Accordingly, the mentioned factors will all lead to halved inflation level in 2012 by 2.3% yoy respectively.
Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Consumer price index (yoy)

Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Inflation and real GDP growth

Fiscal policy

Fiscal deficits in FB&H and RS in Q3 2011

mostly in line with our expectations
Consolidated revenues and expenditures
The political stalemate at the State level resulted in suspension of the Stand-by Arrangement with the IMF in 2011 and forced both entities (Federation and Republic of Srpska) to amend their budgets for 2011 in terms of planned financing, which was mostly relined on external loans from the IMF and partially from other creditors (FBiH planned BAM 252.9 of the external financing or 1.48% of the budget, while RS planned BAM 177.35 or 1.1% of the budget).Hence, initially Federation of B&H adopted the amended budget for 2011 in beginning of August 2011, where the budget was increased by BAM 36.5 mn or by 2.1% up to BAM 1,735.8 mn, mostly due to increase of the planned revenues (increase by BAM 140.7 mn or 9.7% up to BAM 1,597.1 mn) while the financing was decreased by 41.22% from planned BAM 252.9 down to BAM 148.7, where only BAM 58.7 mn was planned as the external loan from the European Commission, while BAM 90 mn was planned by placing the local currency debt instruments the issue of the Treasury-bills for the first time. In Federation of B&H the revenues where increased mostly by the one-off effect of the extraordinary dividends in amount of BAM 116mn taken-out from the public companies in FB&H majority ownership. In Republic of Srpska, the amended budget was adopted in begging of November, where the increase was more aggressive by 9.4% or by BAM 150 mn up to BAM 1.730,0 mn, mostly on the expenditure side where the current expenditures where increase by 7.7% or by BAM 104 mn up to BAM 1,458 mn, hence the need from financing was needed to be increase from planned BAM 177.35 mn up to BAM 248,1 mn, out of which BAM 216 mn was planned to be realized from the issuances of the domestic debt instruments BAM 120 mn of long-term bonds and the rest by the Treasury-bills issuances. As the State level budget was not adopted still for 2011 due to political stalemate and the consolidated report for the all central fiscal levels are not available for the end of Q3 2011, we would more take into analysis the fiscal stance of the two entities Federation of B&H and Republic of Srpska. In Federation B&H total revenues reached BAM 1,029.10 mn which by 35.2% lower compare to the plan by the amended budget, however 7.8% higher than the in same period of the last year. The expenditures were also lower by 35.4% compared to plan by the amended budget or by 4.1% lower compared to the same period of the last year. The operative deficit (before financing) was BAM 92.1 mn which is still very moderate level of deficit at -0.7% of GDP estimated for 2011, while total deficit (taking into account the level of financing) amounted to BAM -156.4 mn or -1% of estimated GDP. On the other hand, the fiscal situation in RS at the end of the H1 2011 (the latest available data) was following, the revenues reached level of BAM 719.9 mn and were 9% higher compared to the same period of previous year, while the expenditures amounted to BAM 758.9 mn. The financing amounted to BAM 82.16 mn where domestic financing through the issue of T-bills reached BAM 63.2 mn. Hence, the operating deficit amounted to BAM -39 mn or 0.5% of GDP.

Source: Central Bank of B&H, Raiffeisen RESEARCH

General budget balance (% of GDP)

Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

External debt of B&H (% yoy)

Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Banking sector

B&H banking sector as of 30.09.2011

reported net profit of BAM 82.1 million
Total loans and deposits (yoy)
The financial soundness indicators in Q3 2011 mostly continued with downward trend. The Capital Adequacy (Net capital to RWA) in Q3 2011 went down to 15.3% (from 15.5% in Q2) which represents the lowest value of the Capital Adequacy since Q2 2010. Furthermore, the NPAs to total assets jumped from 8.6% in Q2 to 9.1% in Q3 2011 while at the same time NPLs to total loans reached value of 12.6% from 11.8% in Q2 2011. On the other hand, the liquidity of the banking sector showed slight increase to 27.2%. The banking sector profitability remain stable with the profitability indicators of ROA = 0.4% and ROE = 3.5%. Furthermore, according to the Entity Banking Agencies data, bh. banking sector as of 30.09.2011 reported positive financial results of BAM 82.1 million, comparing to the net loss of BAM 77.2 reported in same period of 2010. The net profit was achieved by 22 banks (13 in FB&H and 1 in RS) in total amount of BAM 141.7 million while negative result was reported by 7 banks (6 in FB&H and 1 in RS) in total amount of 59.6 million. September 2011 delivered further strengthen of the B&H banking sector growth, as overall credit and deposit performance continued to report upward momentum. Furthermore, total loans of B&H banks grew by 7.3% yoy (representing the highest yoy growth rate reported since May 2009) up to BAM 15.29 bn. The credit performance is still benefiting from the upbeat in Corporate loans which also in Sep-2011 reported the highest growth rate since May 2009, +8.6% yoy growing to BAM 8.1 bn. At the same time, the growth of the second largest loans category Retail loans slowed down somewhat during Sep- 2011 increasing by 2.9% yoy up to BAM 6.46 billion. On the other side, value of total deposits by the end of Q3 2011 amounted to BAM 12.83 billion (+4% yoy) The positive deposits performance is solely owed to unrelenting upturn in Retail deposits as the only deposit category which posted positive performance in 2011. Thus, the Retail savings as end of September totaled to BAM 6.88 billion increasing by 11.7% Taking into account the latest negative developments on the world financial markets, which will consequently lead to worsening of the domestic banks external financing possibilities, we do expect slow-down in the credit performance with annual average growth rate of about 5% yoy in Q4 2011. Furthermore, the rising risk aversion will narrow the chance for further decline in active interest rates which will by the end of 2011 remain at the approximately same level as in Q3 2011. In 2012 we could expect more pronounced drying-up of the credit growth in B&H, as a indirect consequence of the European Banking Agency stipulation for achievement of 9% Tier 1 ration until June 30 th for all EU-zone banks. Hence, as the most of the EU owned BH banks would need to achieve the level of risk weighted assets with purpose to support achievement of Tier 1 adequacy ratio at the group level, this should consequently lead to decline in overall credit growth rates in BH banking sector.

Source: Central Bank of B&H, Raiffeisen RESEARCH

Credit performance by categories (yoy)

Source: Central Bank of B&H, Raiffeisen RESEARCH

Interest rates on loans with currency clause

Source: Central Bank of B&H, Raiffeisen RESEARCH

Equity and Debt Market

Total turnover on B&H markets fuelled by

primary markets developments
Ordinary trade with shares and bonds on SASE and BLSE Novembers trade on bh .markets hits record high value thanks to primary market developments in particular public offering of bonds and T-bills, while at the same time ordinary trade with shares and bonds remain extremely poor. Furthermore, first public offering of RS bonds which was held on 15th and 16th November 2011 was 100% successful with BAM 108.56 million of sold bonds value. The last month was wealthy with the T-bills auctions as well. The third auction of RS T-bills was held on 29.11.2011 with 1570 T-bills auctioned, total value of BAM 15,283,950. The Auction was closed by a single equilibrium price of 97.35% with an interest rate of 4.0985%. Earlier on Sarajevo Stock Exchange (SASE) (November 08th) was held the second auction of 6M Treasury Bills of Federation B&H with 2500 auctioned T-bills, total value of BAM 24,714,958.70. Auction was concluded with average price of 98.863% or average interest rate of 2.31%. Hence, total value of bonds and T-bills public offerings amounted to BAM 148.6 million representing 90% of total turnover realized in domestic markets in November 2011. As we expected, the primary markets development are getting more intensive as the entity Ministries of Finance are seeking the way to finance the budget deficit as they were left out of the planed tranches from the IMF Standby Arrangement due to political stalemate on the State level. Therefore, in the forthcoming period we can expect continuation of the primary markets issues of both, long-term and short-term debt instruments. Furthermore, according to the ambitious entity governments plans for the new debt instruments issues in 2012, FB&H plans to issue BAM 200 mn of T-bills with (3M 6M maturity) while at the same time RS plans auction of BAM 80 million of T-bills (6M 9M). Furthermore, after first public offering of RS bonds, we could expect the same scenario in FB&H with the first 3Y bonds to be issued in amount of BAM 100 million according to the preliminary plans of the Ministry of Finance of FB&H. On the other side, equity markets continue to report decline in trading volumes. The financial crisis in euro-zone results in withdraws the foreign investors while domestic investors are not sufficient to support equity volumes traded. As a result, in November 2011 total turnover on both bh. markets amounted to BAM 9.96 million or 6% of total turnover. The poor liquidity was followed by the major slump of the main blue-chip indexes. Furthermore, SASX-10 ended month at 785 pts and further sank to 760 pts by the middle of December 2011 which is loss by 19.5% Ytd. At the same time, the BIRS as of end of November 2011 plunged to 892.5 index points and went further into red to 835 by the middle of December 2011, reporting -12.6% Ytd. Hence, the B&H equity markets will not be able to stay unaffected by the global economic turmoil which will we reflected in further deterioration of liquidity and index values.

Source: Sarajevo and Banja Luka Stock Exchange, Raiffeisen RESEARCH

Key indexes on SASE and BLSE

Source: Sarajevo and Banja Luka Stock Exchange, Raiffeisen RESEARCH

Most liquid FCS bonds - SASE (yield %)

Source: Sarajevo Stock Exchange, Raiffiesen RESEARCH

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B&H Economic Outlook

B&H is facing stagnation in 2012 reflected in

forecasted 0% yoy real GDP growth
Industrial production and CPI (yoy)
B&H in first semester of 2011 managed to report vigorous dynamics in industrial production and exports which were the main GDP drivers (by production and expenditure side methodology) same as in year before. Hence the robust growth in the early months of the year was followed by a moderate slowing-down in economic momentum in Q3, as the slump of economic fundamentals in euro-zone took its first impacts on BH economy. Accordingly the final quarter is now likely to see further deterioration in economic momentum. However, we estimate real GDP growth at 1.9% yoy in 2011 which should be accomplished due to strong rebound of exports and industrial production reported in the first semester of 2011 followed by slowing-down reported in the last two quarters of 2011. Furthermore, the recessionary trends in euro-zone should peak in H1 2012 and strongly take its toll on BH economy with similar economic scenario seen in first wave of economic crisis back in 2008. Further worsening of external demand will engulf the export and export-oriented industrial production to low one-digit figures. The external demand from the eurozone will fade away, in particular from Italy and Germany which were the main BH trade partners in euro-zone so far. Hence, the positive momentum in these two key economic categories will be insufficient for overall positive growth as we expect slump of domestic demand again down to recessionary levels. Moreover, cuts in risk weighted assets will lead to drying-up of credit flows from EU-owned BH banking sector, consequently leading to negative performance of credit-driven private investments and consumption. Also the real cuts in net and gross wages along with limited rise in unemployment rate up to 43.4% will mutually hamper the domestic consumption which should once again deliver mild negative momentum by 0.5 yoy in real terms. The political stalemate will most probably prolong further in H1 2012, which along with economic crisis will lead to further decline in FDIs inflows. Consequently, the gross fixed capital formation will also slump by 5% yoy in 2012 after expected positive developments in 2011 (estimate of real growth +6.0%). Taking into account all above-mentioned trends of main drivers of economic growth, we expect to see stagnation of BH economy in 2012 reflected through forecasted 0% yoy real GDP growth. Moreover, having in mind the gloomy EU perspective, BH economy could once again be stuck into recession in 2012 even though it is still not our basic scenario. Hence, the final recovery can not be expected before 2013, although the growth rates will still be well below the pre-crisis period when average real GDP growth stood at respectable level of 5% yoy (2000-2008).
Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Unemployment rate and real GDP

Source: Agency for Statistics of B&H, Raiffeisen RESEARCH

Real GDP of B&H vs real GDP of euro zone

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Impressum

Raiffeisen Research

Raiffeisen BANK d.d. Bosna i Hercegovina

Investment Banking Division Sanja Korene, Head of Investment Banking; Phone: + 387 33 28 71 22, e-mail: sanja.korene@rbbsarajevo.raiffeisen.at Ivona Kristi, Head of Research; Phone: + 387 33 28 77 84, e-mail: ivona.kristic@rbbsarajevo.raiffeisen.at Dragomir Grgi, Head of Capital Markets; Phone: + 387 33 28 71 26, e-mail: dragomir.grgic@rbb-sarajevo.raiffeisen.at Nadira Cenanovi, Head of Brokerage Business and Investment Advisory; Phone: +387 33 28 76 47, e-mail: nadira.cenanovic@rbb-sarajevo.raiffeisen.at

Raiffeisen CAPITAL a.d. Banja Luka

Nataa Majstorovi, Director; Phone: + 387 51 23 14 90, e-mail: natasa.majstorovic@rbbsarajevo.raiffeisen.at

Publisher

Raiffeisen BANK d.d. Bosna i Hercegovina Zmaja od Bosne bb, 71000 Sarajevo www.raiffeisenbank.ba Raiffeisen direct info: +387 33 75 50 10 Fax: +387 33 21 38 51 This publication was completed on December 26th, 2011

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