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Montenegro and Kosovo Country Risk Report Q2 2016

Montenegro and Kosovo Country Risk Report Q2 2016

Core Views

Kosovo will remain mired in political and social instability despiteattempts by the West to defuse the situation, most recently in the EUParliament's resolution on Kosovo in early February 2016. AlthoughKosovo and Serbia reached an agreement in August 2015 overmajor issues that divide them, we expect deep seated nationalistsentiment on both sides to continue obstructing the implementationof the deal for the foreseeable future.

The ongoing political crisis in Kosovo will be the biggest impedimentto growth in 2016, and has prompted us to revise down ourreal GDP growth forecast to 2.4%, from 3.0% previously. Politicalgridlock will delay the implementation of Kosovo's deal with the IMF,putting on hold planned wage cuts and austerity measures, givingthe household sector a temporary respite.

Core Views

Montenegro's macroeconomic growth outlook for 2016 remainssubdued, due to political instability, diminished tourist arrivals fromRussia and lower production and prices for aluminium, its maincommodity export. We forecast real GDP to expand by 2.8% in2016, from an estimated 1.9% in 2015.

While the vote of no confidence to oust Montenegro's PrimeMinister Milo Djukanovic in January 2016 was unsuccessful, weexpect political instability to rise in the coming months, with a snapballot becoming a prominent possibility ahead of the scheduledparliamentary election in the fall of 2016.


Executive Summary – Kosovo
Core Views
Key Risks
Chapter 1.1: Economic Outlook – Kosovo
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Political Gridlock Weighing On Growth
The ongoing political crisis in Kosovo will be the biggest impediment to growth in 2016, and has prompted us to revise down our real
GDP growth forecast to 2.4%, from 3.0% previously.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: PUBLIC CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Chapter 1.2: 10-year Forecast – Kosovo
The Kosovan Economy To 2025
Economy To Remain Least Developed In Region
Kosovo's economy will remain the least developed in the Western Balkan region through to 2025, as underdeveloped road and energy
infrastructure act as a clear check on growth potential over the long term.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 1.3: Political Outlook – Kosovo
SWOT Analysis
BMI Political Risk Index
Domestic Politics
EU Resolution Of Little Help To Kosovo
Kosovo will remain mired in political and social instability despite attempts by the West to defuse the situation, most recently in the EU
Parliament's resolution on Kosovo in early February, 2016.
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 2025.
Executive Summary – Montenegro
Core Views
Key Risks
Chapter 2.1: Economic Outlook – Montenegro
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Headwinds To Growth On Both Domestic And External Front
Montenegro's macroeconomic growth outlook for 2016 remains subdued, due to political instability, diminished tourist arrivals from
Russia and lower production and prices for aluminium, its main commodity export.
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
GDP By Expenditure Outlook
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Chapter 2.2: 10-Year Forecast – Montenegro
The Montenegrin Economy To 2025
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 3.2% between 2016 and 2025.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 2.3: Political Outlook – Montenegro
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Lack Of Political Consensus On NATO Membership To Stoke Instability
While the vote of no confidence to oust Montenegro's Prime Minister Milo Djukanovic in January 2016 was unsuccessful, we
expect political instability to rise in the coming months, with a snap ballot becoming a prominent possibility ahead of the scheduled
parliamentary election in the fall of 2016.
Long-Term Political Outlook
Converging Towards The EU
Over our forecast period to 2025, we expect Montenegro to experience a sanguine domestic policy environment while gradually
converging with Western European norms and gaining eventual entry into the EU.
Chapter 2.4: Operational Risk – Montenegro
SWOT Analysis
BMI Operational Risk Index
Operational Risk
TABLE: SOUTH EAST EUROPE – LABOUR MARKET RISK
TABLE: SOUTH EAST EUROPE – LOGISTICS RISK
TABLE: SOUTH EAST EUROPE – CRIME AND SECURITY RISK
TABLE: SOUTH EAST EUROPE – TRADE AND INVESTMENT RISK
TABLE: MAIN IMPORT PRODUCTS, 2014
Chapter 3: Regional Outlook
Regional Outlook
Balkans To Face Rising Instability In 2016
The Balkans faces the risk of greater instability and unrest in 2016, as a result of separatist sentiment in Bosnia-Herzegovina's Serb
entity, ongoing tensions between Serbs and Kosovars in northern Kosovo, the spectre of Islamic State gaining a foothold in the region,
and an early election in Macedonia.
TABLE: SOUTH EASTERN EUROPE – CORRUPTION PERCEPTIONS INDEX
Chapter 4: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: KOSOVO – MACROECONOMIC DATA & FORECASTS
TABLE: MONTENEGRO – MACROECONOMIC DATA & FORECASTS

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