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Kosovo and Montenegro Country Risk Report Q2 2015

Kosovo and Montenegro Country Risk Report Q2 2015

Core Views

Despite mounting domestic and foreign policy challenges, we expectKosovo’s grand coalition to overcome disagreements and hold togetherfor the duration of its term ending in 2018. Integration withinWestern political and economic organisations will remain a commongoal for the two coalition partners, underpinning their willingness tocooperate.

We remain sceptical that Kosovo’s new coalition government’s plansto reorientate the economy from a consumption-driven model towardsan investment-focused one will bear fruit any time soon. We expectthe fragile political stability outlook for the country to keep investorsat bay, hampering foreign direct investment inflows into Kosovo.

Core Views

Despite renewed attempts by opposition parties in Montenegro tochallenge the ruling coalition’s position in power, the governmentof Prime Minister Milo Djukanovic will remain intact for the durationof its term in power until 2016. We expect Djukanovic’s cabinetto remain committed to pursuing political, economic and militaryintegration with the West despite a halt to the EU’s enlargementpolicy.

The outlook for the Montenegrin economy is bleak due to tepidexternal demand, which will weigh on the tourism sector and agriculturalexports. Meanwhile, tight credit markets will prevent a fullrecovery in domestic demand


Executive Summary - Kosovo
Core Views
Key Risks To Outlook
Chapter 1.1: Political Outlook - Kosovo
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Unity Of Coalition Stronger Than It Appears
Despite mounting domestic and foreign policy challenges, we expect Kosovo's grand coalition to overcome disagreements and hold
together for the duration of its term ending in 2018. Integration within Western political and economic organisations will remain a
common goal for the two coalition partners, underpinning their willingness to cooperate.
Table: Politic al Over view
Long-Term Political Outlook
Political Future Far From Certain Despite Serb Agreement
Kosovo's long-term political future is far from assured, with a host of structural economic inefficiencies, weak institutions and societal
schisms weighing on the country's outlook through to 2023.
Chapter 1.2: Economic Outlook - Kosovo
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Political Instability To Hamper Government's Plans To Boost Investment
We remain sceptical that Kosovo's new coalition government's plans to reorientate the economy from a consumption-driven model
towards an investment-focused one will bear fruit any time soon. We expect the fragile political stability outlook for the country to keep
investors at bay, hampering foreign direct investment inflows into Kosovo.
TABLE: GDP By Expe nditure
Chapter 1.3: 10-Year Forecast - Kosovo
The Kosovan Economy To 2024
Economy To Remain Least Developed In Region
Kosovo's economy will remain the least developed in the Western Balkan region through to 2024, as underdeveloped road and energy
infrastructure act as a clear check on growth potential over the long term. Foreign assistance and remittance inflows will remain key
sources of external capital, particularly as elevated political risk continues to deter large-scale foreign investment.
TABLE: Long-Ter m Macr oec onomic Forec asts
Executive Summary - Montenegro
Core Views
Key Risks To Outlook
Chapter 2.1: Political Outlook - Montenegro
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Coalition To Weather Opposition Challenge
Despite renewed attempts by opposition parties in Montenegro to challenge the ruling coalition's position in power, the government
of Prime Minister Milo Djukanovic will remain intact for the duration of its term in power until 2016. We expect Djukanovic's cabinet to
remain committed to pursuing political, economic and military integration with the West despite a halt to the EU's enlargement policy.
Long-Term Political Outlook
Converging Towards The EU
Over our forecast period to 2024, we expect Montenegro to experience a sanguine domestic policy environment, while gradually
converging with Western European norms and gaining eventual entry into the EU. Nevertheless, the country faces significant challenges
over this timeframe, not least of which is a lingering legacy of regional conflict, fostering economic growth, and tackling difficult reforms.
Chapter 2.2: Economic Outlook - Montenegro
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Macro Outlook Remains Bleak
The outlook for the Montenegrin economy is bleak due to tepid external demand, which will weigh on the tourism sector and agricultural
exports. Meanwhile, tight credit markets will prevent a full recovery in domestic demand.
TABLE: GDP By Expe nditure
Chapter 2.3: 10-Year Forecast - Montenegro
The Montenegrin Economy To 2024
BE Reforms Crucial For Convergence
We hold a relatively bullish outlook on Montenegro's long-term convergence prospects, and forecast real GDP to expand by an average
of 3.0% between 2014 and 2024. That said, we stress that, in order to realise its full growth potential, Podgorica will need to address
ongoing shortcomings to the country's underlying business environment. While we see significant scope for further foreign investment
over the long term, we believe growth will remain dependent on the production of aluminium, in addition to the tourism and infrastructure
sectors.
TABLE: Long-Ter m Macr oec onomic Forec asts
Chapter 2.4: Operational Risk - Montenegro
SWOT Analysis
BMI Operational Risk Index
Operational Risk
table: Sout h East Eur ope - Labour Market Risk
table: Sout h East Eur ope - Logi stic s Risk
table: Sout h East Eur ope - Cri me And Securit y Risk
table: Sout h East Eur ope - Trade And Investment Risk
Table: Main Import Product s, 2012
Chapter 3: BMI Global Assumptions
Global Outlook
Weaker EMs To Weigh On Growth
Table: Global Assumpti ons
Table: Developed St ate s, Real GDP GrowtH , %
Table: BMI VERSUS BLOOM BERG CONS ENS US REAL GDP GROWTH FORECAS TS, %
Table: Emergi ng Market s, Real GDP Growt h, %

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