Economic Research

Division

Greece andEurope
Southeastern Europe
Greece and Southeastern
EconomicOutlook
and Financial Outlook
Economic and Financial
June 2007
No 62
1. Greece

At 4.6% yoy, Q1 growth was stronger than expected.

With the surge in investment and exports expected to
continue in the following quarters and the healthy
expected growth of consumption, full year GDP growth
should exceed 4.0% once again in 2007, notwithstanding
the high growth of imports. Growth is set to continue at
buoyant rates in 2008-2009 on the back of continuing
high investment and exports growth.

A fall in the general government deficit to 2.4% of GDP in

2007 is likely on the basis of the trends emerging from
the implementation of the budget in the Jan-Apr 2007
period.

Inflation is set to edge lower to 2.5% by mid-year 2007

and rising to 3.0% by the year-end, with core inflation
hovering at 2.9%.

Despite the resilience exhibited by the economy in recent

years, the gradual erosion of competitiveness, persistent
structural rigidities and the unsustainable pension system
are impeding long-term fiscal adjustment and threatening
the economys long run growth potential.
Basic Conjunctural Indicators
(change from previous period)

2005*
Retail Sales
Turnover Index
Volume Index
Automobile sales
Tax on Mobile telephony
VAT Receipts
Total Consumption
Building activity (Permits)
Cement Production
Public Investment
Total Investments
Industrial Production
Composite Index
Manufacturing Production
PMI (manufacturing)
Exports goods & services
Imports goods & services
GDP (growth)

2006*

2007*

6.0%
3.0%
-3.0%
10,8%
2.8%
3.0%
35.2%
2.4%
-21.0%
0.0%

10.8%
8.0%
0.5%
11.8%
12.0%
3.3%
-19,5%
3.1%
8.8%
12.7%

8.3%
4.4%
3.5%
116.2%
13.0%
2.8%
2.2%
-3.6%
31.5%
15.8%

Jan-Mar
Jan-Mar
Jan-Apr
Jan-Mar
Jan-May
Jan-Mar
Jan-Mar
Jan-Apr
Jan-Apr
Jan-Mar

-0.9%
-0.8%
51.5
3.7%
-2.1%
3.7%

0.5%
0.8%
52.4
5.4%
9.8%
4.2%

2.2%
2.0%
53.2
9.8%
15.1%
4.6%

Jan-Apr
Jan-Apr
Apr
Jan-Mar
Jan-Mar
Jan-Mar

* Growth rates are calculated on a cumulative basis

ECONOMIC DEVELOPMENTS
Based on available data for the first four months of
2007, the Greek economy has once more surprised to
the upside with Q1 2007 growth of 4.6% (4.2% Q1
2006, 4.3% 2006) ahead of both our and broader
market expectations. Following the revision to the first
flash estimate, Q1 investment surged higher by 15.8%
(9.9% Q1 2006) and Exports by 9.8% (2.1% Q1 2006).
Private Consumption registered growth of 2.8% (3.4%
Q1 2006) while Government Consumption slowed with
growth of 2.6% (4.4% Q1 2006). However, Imports
surged as well, offsetting the beneficial impact from
exports, with growth of 15.1% (9.9% Q1 2006). Once

again, this led the deficit on the Trade and Services

account to subtract 2.3 pps from growth in the quarter.
While private consumption has moderated, retail sales
remain buoyant, with both residential construction and
manufacturing production registering solid growth.
Public investment is set to remain one of the main
drivers of growth in 2007-2008 as the government
accelerates absorption of EU funds in the final two
years of the CSF III implementation period. Also, the
housing and business investment outlook remains
positive. Finally, private consumption growth is being
supported by high growth of disposable income on the
back of tax cuts and income support measures and
high credit growth.
On the fiscal adjustment front, the implementation of
the Budget during Jan-Apr 2007 was satisfactory and
on target to meet the 2.4% of GDP general government
deficit expected for 2007, while forecasts by the
European Commission and the OECD put the deficit at
less than 3.0% of GDP in both 2008 and 2009. In fact,
on the 5th June 2007 the European Council agreed to
end the excessive deficit procedure against Greece.
Inflation continues to head lower to 2.6% in May 2007,
benefiting from favourable base effects. Inflation is
expected to average 2.8% in 2007, down from 3.2% in
2006. Core inflation moved higher to 2.9% in May,
mainly due to indirect tax increases imposed as
substitutes to cuts in direct taxation.
On the balance of payments front, exports of goods and
services remained buoyant during Jan-Apr 2007, with
exports of goods, tourism and shipping revenues
growing at 7.8%, 5.2% and 6.4% respectively. This is
combined with a surge in capital inflows as portfolio
investment by foreign residents rose to 16.3 billion for
the period ( 6 billion Jan-Apr 2006). Also, foreign direct
investment by Greek firms abroad reached 2.4 billion
in Jan-Apr 2007 ( 0.23 billion in Jan-Apr 2006).
The Athens Stock Exchange saw 5.5 billion of net
inflows from abroad which helped to boost volumes and
the GPI by 7.9% by 25 June 2007. Stock prices
continues to be supported by the strong pace of the
economy and the strength of domestic firms, evident by
Contents
1. Greece ....................................................................................... 1
2. Romania .................................................................................... 5
3. Bulgaria...................................................................................... 6
4. Cyprus ....................................................................................... 8
5. Serbia ........................................................................................ 9
6. Albania..................................................................................... 10
7. Former Yugoslav Republic of Macedonia................................ 11
8. Turkey ...................................................................................... 12
9. Economic Data Greece......................................................... 14
10. Economic Data Southeastern Europe ................................ 15

the surge in pre-tax profits of listed firms, up by 35% in

2006, while profits-per-share increased by 31%.
GDP growth reached an annual growth rate of 4.1% for
the last decade, supported by substantial, albeit
inadequate, progress in the area of structural reform
and in an environment of deepened convergence in
Southeastern Europe. Over the last decade, Greece
has developed substantial business interests in the
area and is now well placed to reap the increasing
benefits generated by the rapid growth of the region.

The expected continuation of robust growth of private

consumption as disposable income receives a boost

Athens Stock Exchange

1 January 1995 - 09 June 2007

7000

70

Volatility 30d Calc (RHS)

Index (LHS)

6000

60

5000

50

4000

40

3000

30

2000

20

1000

10

0
1998

line with the robust growth prospects generated by the

Olympic Games and the expansion and improvement of
domestic infrastructure and tourism facilities. Moreover,
in the past few years we have observed a surge of
investment in vacation-oriented housing, in response to
increased demand from the northern European
countries. Finally, shipping revenues are set to continue
on a positive upward trend following the healthy growth
of international trade and the continued expansion of
the numerous shipping fleets under Greek ownership.

from the current incomes policy and in particular from

the substantial increase income supporting measures
and the direct income tax cuts scheduled for 20072009. Moreover, consumer credit expansion is also
expected to continue at relatively high rates of around
20%, notwithstanding the substantial increase in the
cost of borrowing following the surge of ECB rates.

STRUCTURAL REFORM FOR LONGER TERM GROWTH

0
1999

2000

2001

2002

2003

2004

2005

Greeces GDP growth from 1996 to 2007 has been

mainly investment based, with average yearly growth of
total investment reaching 7.8% and, more importantly,
with annual growth of investment in equipment
exceeding 11.0% in the same period, indicative of large
scale modernization and implementation of new
technology. The significant investment program
implemented during this decade, co-financed by the
CSF II & III programmes, is the main factor explaining
the satisfactory performance of Greek exports of goods
and services in the last few years. It has contributed to
the substantial restructuring and reorganization of
Greek businesses, to the modernization and expansion
of public infrastructure and to the rapidly expanding
competitive production and export capacity of the
country in a broad range of sectors, not only tourism.

GROWTH PROSPECTS FOR 2008-2009

Based on the following points, we expect the economy
is to continue on its high growth path, with average
annual GDP growth at 3.8% in the 2008-2009 period:
The continued strong growth in investment, including:

(a) the completion of investment programs under the

CSF III and commencement of the CSF IV
programmes, (b) the continuation of positive growth of
housing investment (2007: 6.5%, 2008-2009: 3.5%
annually) on the back of the high volume of permits
issued in 2005-2007, and (c) the implementation of a
myriad of business investment programs approved and
included in the investment incentives law during the
2005-2006 period.
The continued strength in the exports of goods and
services due to: (a) the positive outlook for the

European economies and (b) the substantial increase in

domestic supply potential. Tourism growth has been in

Nevertheless, economic developments thus far

highlight the need for structural reform via increased
emphasis on competitiveness and fiscal adjustment.
This would enable the external sector to shift from
being a drag on the economy to being one of the main
growth drivers. This, however, can only be achieved by
increasing the domestic savings rate by targeting a
surplus in the general government budget. Also, with no
recourse
to
exchange
rate
adjustments,
competitiveness improvements can only be brought
about if ULC growth is contained, requiring wage
growth to remain below the rate of productivity growth
as is the case in Germany and most of the Eurozone
member countries. More specifically:
Fiscal adjustment in the 2002-2007 period has been
constrained by net current revenues growing at a mere
average annual rate of 5.8% (much less than nominal
GDP growth of 7.8%), while at the same time current
primary expenditure is growing by an average annual
rate of 9.2%. This is primarily due to the excessive
evasion of tax and social insurance contributions
affecting current revenue and to excessive growth of
civil servants wages and budget payments for pensions
affecting current expenditure. In fact, combating tax and
social insurance contribution evasion is needed to
facilitate the improvement of the Greek social security
system. Moreover, corporate and personal income tax
cuts, which have been promulgated by the government
in the last years, cannot be properly institutionalised
without restraining the rate of growth of current primary
expenditure to below that of nominal GDP growth.
Greeces substantial growth dynamic may be greatly
enhanced via much needed and essential reform of the
countrys pension system, leading to a vital upgrade of
Greeces rating by the main credit rating agencies.
The competitiveness of the Greek economy has been
heavily influenced by excessive annual growth of ULC,
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 2

of 3.7% during the 2002-2006 period as compared with

the 1.7% ULC growth in the Eurozone. Domestically,
per-head employee compensation growth surged to an
average rate of 6.4% (3.4% in real terms) during the
same period, compared with 2.4% (0.4%) in the
Eurozone, 1.5% (0.1%) in Germany, 4.0% (1.6%) in the
USA and -0,7% (0.2%) in Japan. Adjusting the wage
setting process in accordance with the requirements
pertaining to Eurozone membership is also a
prerequisite
for
both
an
improvement
in
competitiveness and a fiscal adjustment in Greece.
Finally, following the surge to 10.8% of GDP (8.8% of
GDP without the ships balance) in 2006, the current
account deficit (CAD) which we adjust to include
capital transfers - posted a further increase in Jan-Apr
2007 and is expected to reach once more 9.5% of GDP
(8.5% without the ships balance) for 2007 as a whole.
This unfavourable development is taking place despite
the aforementioned dynamic performance of exports of
goods and services and it is due to: (a) the huge
surplus of the capital account, exceeding 10.2 billion
in Jan-Apr 2007, compared with 5.2 billion in Jan-Apr
2005, (b) to the interrelated high growth of domestic
demand and (c) to the aforementioned gradual
deterioration of competitiveness, all boosting imports of
goods and services. In particular, domestic demand has
been boosted by the continuous sizable net capital
inflows, which are in turn responsible for the rapid
growth of interest payments, dividends and profits,
boosting the deficit in the incomes account of the Greek
balance of payments. Nevertheless, the 2007 CAD
should be favorably affected by the surge in capital
transfers following accelerated absorption of EU funds
under the CSF III programme.

due: a) to broad based improvements ranging from the

stabilization of textile production to the marked
improvement in clothing output and tobacco production,
b) to robust growth of production in the food and
beverage industry, in machinery & equipment and in
chemical products. On the other hand, in negative
territory remained the transportation vehicle production
(-15.2% in Jan.-April 2007, -35.1% Jan-Apr 2006) and
the production of basic metals. Overall, the prospects
ahead are encouraging given that business
confidence in manufacturing has remained strong
and that the PMI index reached 54.1 in May 2007.
Finally, the general index of industrial production
rose by 2.2% in Jan-Apr 2007 (+0.9% in 2006), due to
the 2.0% increase in manufacturing production, a 6,3%
increase in mining and quarrying production (-3.9%
in Jan-Apr 2006), a -1.7% fall in the production of
electricity (-1.7% in 2006), a 50.2% increase in
natural gas production (2.6% in Jan-Apr 2006 and
16.9% in 2006) and a -1.2% increase in water
production (2.6% in 2006).
Manufacturing Production
January 2000 - April 2007
8%

8%

6%

6%

4%

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4%
Index
6m Moving Avg

-6%

-6%

-8%

CONJUNCTURAL INDICATORS
Retail sales volume has averaged growth of 4.7%
between 1998 and 2006 and for Q1 2007 posted a solid
4.4% increase supporting private consumption growth.
Registrations of Private new passenger vehicles grew
also briskly, up 3.5% for Jan-Apr 2007 (-0.3% Jan-Apr
2006). Retail business confidence picked up once
more as the index rose to 130.0 in April 2007, after
reaching a seven year high of 132.6 in February 2007.
Residential construction activity - as measured by
the volume (m3) of building permits - registered growth
of 2.2% in Q1 2007, compared with the 13.6% increase
in Q1 2006. In fact, building permits issued in 20052007 period support growth in residential investment,
which reached 32.3% in 2006 and is expected to reach
6.5% in 2007. Demand for new housing investment has
also been boosted by the continued high growth rate of
mortgage lending (25.5% by end-March 2007). The
construction business confidence index surged to
106.2 in May 2007, from 103.7 in April 2007.
Manufacturing production recorded solid 2.0%
growth for the Jan-Apr 2007 period continuing the 2006
recovery (+0.8% growth). This positive development is

-8%
2001

2002

2003

2004

2005

2006

2007

PUBLIC FINANCES
With respect to the implementation of the 2007
Budget, data for Jan-April 2007 reflect the following:
(a) Net current revenues reached 14.0 billion in JanApr 2007, up 4.9% yoy compared to the budgeted
increase of 6.2%. This outcome is considered to be
satisfactory given the high base-effect, with net current
revenues having increased by 14.3% in Jan-Apr 2006.
Furthermore, tax rebates surged by 43.8% in Jan-April
2007, with a budgeted fall of -8.0%. These data
indicate that the budgeted 6.2% current revenue
growth for 2007 can be reached, following the subpar growth of 5.8% in 2002-2006.
(b) Current primary expenditure reached 14.03
billion in Jan-Apr 2007, up 10.7% yoy (3.1% Jan-April
2006) and remains above the budgeted increase of
7.4%. The surge in current primary expenditure during
the first four months of 2007 is mainly due to the
payment of an additional 110 million rebate of the 2nd
instalment of accumulated taxes on pensions (LAFKA),
the payment of an additional 377 million to OGA for
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 3

the substantial increase in agricultural pensions and the

payment of allowances to families with more than three
children and other new obligations. Containing the
growth of current primary expenditure may prove to be
a challenge for the government in the following years,
due: a) to the observed high growth rate of employment
in the broader public sector in recent years, b) to the
public sector wage policy which leads to across the
board wage increases, independent of productivity
developments, and to a higher rate of growth of
pensions. In fact, employee compensation reached
12.3% of GDP in 2005 (Eurozone: 10.4%), from 10.7%
of GDP in 1996 (Eurozone: 10.9%), while, the average
annual growth of budget payments to the finance the
social security funds operational deficit during the
2002-2007 period reached the 17.8%.
In the Public Investment Budget (PIB), expenditure
reached 1,785 million in Jan-Apr 2007, up 31.5% yoy
compared to the planned 6.9% increase. PIB revenues
reached 2,593 million in Jan-Apr 2007 up 95.8% yoy.
The projected increase for 2007 is 4.7% for the year as
a whole, which should be easily exceeded.

billion, up 8.5% compared with Jan-Apr 2006. Of

particular importance when explaining the continuing
increase in the deficit are: (a) the high rate of growth of
imports of goods excluding ships and oil by 8.8%, and
(b) the high growth of payments for interest, dividends
and profits (Jan-Apr 2007: 32.2%, Jan-Apr 2006:
20.3%). Both are the result of the substantial capital
inflows in the last years, especially in the form of
portfolio investment. On the other hand, capital
transfers from the EU have been even higher in 2007.
Greek Balance of Payments ( Billions)

Trade Balance (TB)

Exports
Imports
Services Balance
Tourism
Shipping
Income Balance
Transfers' Balance
Current Account (CA)
CA (% of GDP)
Capital Account
Source: Bank of Greece

2004
-25.44
12.65
38.09
15.47
10.35
13.31
-4.38
6.02
-8.33
4.95%
5.47

2006 Jan-Apr 2006 Jan-Apr 2007

-35.29
-11.92
-12.65
16.15
5.02
5.24
51.44
16.94
17.89
15.36
2.20
2.33
11.39
0.18
0.16
14.32
2.37
2.55
-7.12
-1.92
-2.36
6.45
2.50
2.77
-20.60
-10.31
-12.18
-10.6%
20.36
1.17
2.27

2005
-25.56
14.20
41.76
15.50
10.84
13.87
-5.68
5.15
-12.59
6.95%
5.49

Real Effective Exchange Rate (March 2007)

As determ ined by ULC's for the total econom y.

1.4

Assuming that there will be no additional delays in

absorbing EU funds in the investment budget, we
estimate that it should be possible to reduce the
general government deficit to 2.4% in 2007. However,
the long term sustainability of public finances requires
further measures aimed at reducing the size and
increasing the efficiency of the central government,
state controlled entities and effectively controlling
current primary expenditure. Even if the aforementioned
indirect tax surcharges help to boost net current
revenue growth in 2007-2008, the required fiscal
adjustment will not be possible without a fundamental
reform of the countrys pension system. Wide-ranging
reforms of the pension and health care systems are
needed to ensure their longterm sustainability.

INFLATION
In May 2007 headline CPI inflation rose by 2.6% and
core inflation by 2.9%. Average headline and core
inflation ended 2006 at 3.2% and 2.7% respectively,
from 3.5% and 3.1% respectively in 2005. The relatively
high core inflation is mainly due to indirect tax increases
(the Alcohol and Tobacco sub-index has averaged over
10% yoy growth since October 2006, contributing an
average 0.45pps), as well as the second-round effects
from high energy prices and high ULC growth. In the
following months, CPI inflation is expected to decline
further to 2.5% in July and thereafter, the impact of
unfavourable base effects could see the rate increasing
to 3.0%-3.1% in Sep-Dec 2007, bringing average 2007
inflation to 2.8% yoy.

BALANCE OF PAYMENTS
The current account deficit (including capital
transfers) reached 20.6 billion or 10.6% of GDP in
2006, having increased by 8 billion or 63.6% from
2005. Data for Jan-Apr 2007 showed a deficit of 9.9

1.4
Germany

1.3

1.3

Greece
USA

1.2

Ireland

1.2

1.1

1.1

1.0

0.9

0.9

0.8
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

0.8

These developments make it necessary to pay closer

attention to the need for fiscal adjustment and for the
improvement in Greeces international competitiveness.
Instead, we have witnessed a gradual deterioration in
competitiveness during the past few years via the
gradual appreciation of the countrys Real Effective
Exchange Rate (European Commission).

MONETARY & FINANCIAL MARKETS

Credit Expansion on a 12-Month Basis
2001 - April 2007

60%

60%

Consumer loans
Loans to Businesses
Mortgages

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%
2001

0%
2002

2003

2004

2005

2006

2007

Credit expansion to enterprises and households (BoG

data) slowed to 19.9% in end-March 2007 from 20.6%
in end-2006 and 21.8% in end-2005. In particular,
mortgage and consumer lending growth reached 25.5%
and 22.7% in end March 2007 (33.6% and 28.6% in
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 4

end-March 2006). Loans to domestic households

reached 45.3% of GDP in end-March 2007 from 39.4%
in end-March 2006, compared to 59.7% of GDP in the
Euro zone. Overall, credit expansion has moderated
towards the end of 2006 and the start of 2007, but is
expected to remain around 20% for the year.
Yield Curve: Greece
2002 - 2007 (09th June)
6.0%
5.5%

2002

5.0%

2004

4.5%

2007

4.0%

2003

3.5%
3.0%

2006

2005

2.5%
Source: Bloomberg

2.0%
1m 3m 6m 9m 1yr 2yr 3yr 4yr 5yr 6yr 7yr 8yr 9yr 10yr 15yr 20yr 30yr

Southeastern Europe
2. Romania
The economic outlook remains positive for 2007 with
private consumption and investment remaining in the
driving seat on the back of: (a) rapid wage growth, (b)
public and EU-related investment projects (c) large
inflows of foreign capital, both direct and portfolio based
and (d) rapid credit expansion supported by declining
interest rates.

However, the economy is at risk of overheating with

increasing capital inflows prompting a continuous nominal
and real appreciation of the domestic currency as the
current account deficit surpassed 10% of GDP in 2006.

Government

and
central
bank
policy
remain
expansionary, with falling domestic interest rates despite
high credit growth and with high wage growth and a
budget deficit, despite high inflation and recent
commitments to reduce the size of the government
deficit.

Romanias economy rebounded from the 2005 floodinduced economic slow down, registering growth of
7.7% in 2006. The driving force remained private
consumption (70% of GDP), with an increase of 13.8%
in 2006 supported by solid wage growth and rapid
credit expansion. It is also projected to grow by 11.9%
in 2007. Also, the strength of investment (23% of GDP),
which grew by 16.1% in 2006, was due to post-flood
reconstruction activity, strong FDI inflows and
accession related public infrastructure spending. The
investment outlook remains positive, with a projected
14.6% growth in 2007. On the other hand, net exports
remained a drag on the economy having subtracted 6.4
pps from GDP growth in 2006. Exports of Goods and
Services remained strong growing by 10.6%, but were
unable to keep pace with the growth in Imports of
Goods and Services of 23%. Assuming the current
political deadlock does not feed into a substantial slow
down in the reform process, the outlook for 2007 is for
growth of around 6.5%.
In 2006 the general government deficit reached to
1.9% of GDP (bellow the targeted 2.5% of GDP)
despite higher than expected revenues. This was due
to high increases in public wages, government
consumption and social transfers. The deficit would
have been even higher, had the government achieved
its expenditure plans for 2006 on infrastructure projects.
With the 2007 budget geared towards a pro-cyclical
expansion, the deficit may increase to 3.2% of GDP.
The strong economic growth provides a boost to
government revenues via increased direct tax receipts
and improved tax collection. This is offset though via
the decision to relax spending, leading to substantially
higher current expenditure. Public sector debt,
however, is maintained to around 13% of GDP.
CPI inflation declined to 4.9% in December 2006 (with
average inflation 6.6% in 2006), staying within the
central banks target range of 4-6%. Inflation is forecast
at 4.5% in 2007, with a 3%-5% central bank target. It
fell to 3.8% in April, but is still high, taking into account
the 11% appreciation of the Lei vs Euro since the end
of 2006 (18% since the end of 2004) and the 34%
appreciation against the dollar since the end of 2004.

Inflation remains high, despite the continuing appreciation

of the Lei. The rapid growth of domestic demand, high
unit labour cost growth and high growth of regional food
and other non-traded goods prices pose serious upside
risk to inflation in the coming months.

Romanian Leu (March 2004 - March 2007)

0.31
0.30

0.28

The external sector remains a concern, evidenced by the

0.27

growing current account deficit, despite being financed

largely by FDI and, to an increasing extent, portfolio
inflows.

0.26

The problems posed by the continued appreciation of the

Lei have prompted the central bank to undertake a series
of rate cuts. While this might help to prevent a more rapid
appreciation, it risks boosting domestic demand at time
when there is upside risk to inflation and a significant
fiscal stimulus.

23% Appreciation vs. Euro since 2004

0.29

0.25
0.24
0.23
2004

2005

2006

2007

Following the increase to 10.3% of GDP in 2006, the

current account deficit (CAD) in the first quarter of 2007
increased by a further 125% to 3.01 billion. The
Trade Deficit widened by 88.4%, as Exports of goods
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 5

increased by 14.2% yoy to 6.2 billion for the quarter

and imports rose by 30.1% to 10.3 billion. The
Services Account recorded a small surplus of 173
million. Overall, Net Exports of Goods and Services
saw its deficit increase by 88% to 3.02 billion.
Moreover, t deficit on the Incomes Account increased
by 59% to 1.1 billion and the surplus on the Current
Transfers Account, having increased by 33.4% to
4.7 billion in 2006, posted an increase of 12.5% in the
first quarter. With significant foreign investment in both
the automotive and manufacturing industries, 2006 saw
net Foreign Direct Investment increase to 9.1
billion, covering 91% of the CAD. In Q1 2007 net FDI
slowed, rising by 28% yoy to 1.3 billion, covering 43%
of the deficit. Additional funds have recently been
attracted by the booming real estate sector, particularly
to the more developed eastern side of Romania,
boosted further by the attractive low corporate tax rate.

Domestic demand is supported by a credibly fixed

exchange rate vs. the Euro, the high growth of domestic
incomes and the artificially low domestic interest rates,
boosting credit expansion, business investment and
housing consumption. High wage growth is resulting in a
real appreciation and gradual loss of competitiveness
negatively affecting the net export balance.

Fiscal policy is not restrictive enough despite

considerable general government surpluses, while tax
revenues are high despite Bulgarias very low corporate
tax rate, attracting needed FDI.

Solid job growth (with a large contribution from the private

sector) and increased participation rates have led to the
decline in unemployment, all the while maintaining
productivity gains due to rapid investment and economic
restructuring.

Non-Government Credit expansion moderated

slightly to 52.7% in March from 55.2% in February,
54.5% in 2006 and 46% in 2005. The largest gains are
being recorded in the Household sector with credit
expansion in domestic currency (which accounts for
57.7% of the total) rising by 72.9% yoy while credit in
foreign currency rose by 85.7%.

The trend of domestic inflation is towards Eurozone

convergence but still remains highly volatile. Inflationary
risks exist in the form of a tightening labour market,
expansionary fiscal policy and food price volatility.

Under current conditions, Bulgarias push for entry into

the ERM-II is being questioned by the ECB, making entry
into the Eurozone before 2012 highly improbable.

The appreciation of the Lei and a positive outlook for

foreign investment in 2007 prompted the Central Bank
to cut its Key Overnight Rate by 25bps to 7.25% in
May. Reserve requirements though, on both Lei and
foreign currency deposits were left unchanged
(Currently reserve requirements on Lei-denominated
deposits with maturities of up to two years stand at 20%
and 40% for foreign currency deposits).
Interest Rate Environment
0.31

25%
23%

0.30

20%

EUR per ROL (RHS)

0.29

18%
15%

0.28

13%
Key Policy Rate (LHS)

10%
8%

0.27
0.26

5%
0.25

3%

Inflation (LHS)
0.24

0%
04/07

01/07

10/06

07/06

04/06

01/06

10/05

07/05

04/05

01/05

10/04

07/04

04/04

01/04

The Romanian government has approved the country's

Euro convergence plan and set a target date of 2014
for Euro zone entry.

3. Bulgaria

The economy is set to continue its strong growth in 2007

and 2008 driven by private consumption and investment
growth.

Risks remain in the form of the ballooning current

account deficit, reaching 16.8% of GDP in 2007 and
expected to increase further as exports slow and
domestic demand remains unsustainably strong.

The underlying economic trends are expected to remain

unchanged in 2007 and 2008. The stabilising influence
of EU accession has supported the countrys fiscal
consolidation and attracted strong capital inflows which
have driven the rapid growth in investment and private
consumption. Bulgarias economy registered growth of
6.1% in 2006 and has average growth of around 6.0%
since 2002. Also, growth in Q1 2007 reached 6.2%
above consensus. Despite measures undertaken to
reign-in credit growth and the larger than forecast
government budget surplus, private consumption
remained strong with growth of 7.5% in 2006 and 8.1%
in Q1 2007. Private consumption will continue to be
supported by higher real wage growth (backed partly by
productivity gains) and continued job creation and is
forecast to increase by 7.8% in 2007. Investment
growth moderated in 2006 rising by 17.6% for the year,
from 23.3% in 2006, but surged up by 35.9% in Q1
2007. Investment is expected to remain robust, with a
continued expansion of production capacity and the
upgrading of existing capital stock, leading to growth of
16.0% for the year. Moreover, the absorption of EU
structural funds commencing this year will boost
investment in public infrastructure. The unbalanced
composition of growth continues to drive the negative
contribution of net exports, having subtracted 6.2pps
from overall growth in 2006. Lower growth of Services
exports (-14.5% in 2006) limited the net improvement
which saw exports of goods and services increasing by
9.0% in 2006 from the 8.5% recorded in 2005. Also, in
Q1 2007 imports outpaced exports again growing at
13.2% with exports growing only by 2.2%.

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 6

In 2006, the government recorded a General

Government Surplus of 3.25%, up from around 2% in
2005. Strong growth in revenues with improved tax
collection offset the decline in pension fund
contributions. This development was complimented by
expenditure restraint both of primary spending and
interest payments, reducing expenditure-to-GDP by
almost 3% of GDP. The government surplus is
expected to decline to around 2.0% of GDP in 2007.
This is the outcome of two factors. Firstly, the reduction
in corporate and income tax rates this year will impact
on revenue, despite a projected offset from improved
tax collection. Secondly, the re-allocation of part of VAT
revenues to both the EU budget and towards increased
capital spending. Bulgaria is set to spend 870 million
in 2007 to co-finance accession related, EU-backed
projects. However, the general government budget
posted a Q1 surplus equal to 275.8mn accounting for
roughly 1% of projected 2007 GDP. Excluding the EU
contributions, the surplus equals roughly 1.3% of
projected GDP versus the 0.9% of GDP for the same
period of 2006. Revenue growth accelerated to 15.4%
yoy, while expenditure grew by 9.8% yoy, boosted by
capital expenditure (up 88.4% yoy in the first quarter).
General Government Debt is expected to decline to
20.9% in 2007 from 22.8% in 2006 and 45.9% in 2003.
Population Dynamics 1990 - 2050
(in millions)
25

25

23

23

Romania

20

20

18

18

15

15

13

13
Greece

10

10

Bulgaria

0
1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

The private sector has shown strong job growth, aided

by reduced pension contributions (lower by 3 pps to
33.6%) and the increase in participation rates. This led
to employment growth of around 2.5% in 2006. With
participation rates increasing once more in 2007, 1.0%
employment growth is expected despite the decline in
working-age population due to negative demographic
trends. Eurostat forecasts that the unemployment rate
will decline to around 7.5% in 2008. As the labour
market continues to tighten, there will be upward
pressure on nominal wages. This impact on unit labour
costs will be offset partly by increased labour
productivity which is projected to rise from roughly 3.5%
in 2005 to 5% in 2008, boosted by continued
investment and economic restructuring.
In 2006, CPI Inflation reached to 6.5% in December
2006, and averaged 7.3% for the year. However,
inflation fell to 4.1% in March 2007 from 7.1% in
January, when the significant rise in yoy inflation was
due to excise tax increases, contributing 2.85pps to the

rise. Inflation is forecast at 4.4% by year-end 2007,

which is still high considering Levs peg to the
appreciating Euro.
In 2006 the Current Account Deficit shot to 15.9% of
GDP, while for 2007 the IMF and Eurostat have raised
their forecasts to 17% and 16.6% respectively due to
slower than expected growth in exports. The weaker
export outlook is partly due to developments in the
copper sector where production output had been
forecast to increase substantially in 2007. Completion
of investment projects which were planned for this year
are now only expected in 2008. The deficit on the
trade account increased by 48% in January-February
2007 on the back of a 39% increase during the same
period last year. This is mainly due to exports growing
at a mere 4.1% for the period compared to 31.7% the
previous year and imports growing at 15.9%, compared
with +33.6% in Jan.-February 2006. The surplus on the
Financial Account has contracted sharply in the first
two months of 2007, declining by 61.4% due firstly to
the decline in net Foreign Direct Investment (FDI)
which slowed to 371.6 million from 418.4 million and
secondly the continued decline in portfolio investment.
Direct investment covered 41.6% of the current account
deficit vs. 76.3% in January February 2006.
Credit Expansion to the Non-Government Sector
(measured in Leva) has accelerated for the third time in
2007, increasing by 36.6% in March from 27.7% in
January. Credit expansion to Households and NPISHs
(Non-Profit Institutions Serving Households) rose to
37.6% from 32.4% in February and accounts for
roughly 38% of all outstanding credit. Credit to nonfinancial corporations increased 36.6% in March from
30.1% in February and accounts for 60% of all
outstanding credit. This expansion is partly due to the
removal of credit restrictions which were introduced in
Q4 2005 but were being gradually circumvented via
increased non-bank lending.
Inflation Differentials - YoY % Change
14%

14%
Romania

12%
9%

12%

Maastricht
Criteria - 2.8%

7%

9%
7%

Bulgaria

4%

4%

2%

2%
Eurozone

-1%

-1%
Jan
Jul
Jan
Jul
Jan
Jul
Jan
2001 2001 2002 2002 2003 2003 2004

Jul
Jan
Jul
Jan
Jul
Jan
2004 2005 2005 2006 2006 2007

Bulgaria has reaffirmed that it will look to join the ERMII this summer, but has postponed entry into the
Eurozone until 2012, two years later than initially stated.
Bulgaria already meets the Maastricht Criteria as
relates to the budget deficit, government debt and
interest rates. The last hurdle remaining on the way to
adopting the Euro is inflation (see graph above).
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 7

4. Cyprus

A solid recovery has lead to positive GDP growth of 3.8%

in 2006 with a similar forecast for 2007.

Determined fiscal policy has facilitated declines in both

the budget deficit and government debt ratios. However,
the aging population and the impact on the countrys
fiscal outlook are posing some difficult questions for the
government.

Inflation remains contained and well below the

requirements set by the Maastricht Criteria. Largely
technical factors (VAT harmonisation) and energy price
related developments will push inflation higher but still
well below the Eurozone level.

Having participated in the ERM II framework since 2005,

Cyprus has received the green-light to adopt the Euro in
2008.

Cyprus economy has recovered from relatively weak

growth in 2002-03, registering growth of 3.8% in 2006
(3.9% in 2005). The economy received a boost from the
decline in interest rates, and the strong EU-accession
related capital inflows which spurred growth in private
consumption and investment. The outlook for 2007 is
for full year growth of 3.8% with a first quarter GDP
flash estimate of 3.7% vs. the 3.5% recorded in the
same period of 2006. The drivers of growth remain
private consumption, accounting for 65% of GDP, which
grew at a slightly slower pace in 2006, rising by 4.0%
vs. 4.7% in 2005. Sustained wage and income growth
in 2007 should keep private consumption strong, albeit
it levelling of slightly to 3.5%. Likewise investment,
which accounts for 18.9% of GDP, posted a strong
recovery in 2006 with growth of 5.2% (2.7% in 2005).
The forecast for investment growth remains strong in
2007 based on a combination of strong foreign demand
for both housing and larger infrastructure projects which
will drive construction growth as well as higher
investment in machinery and equipment due to the
broad positive sentiment based on the prospects of
Euro adoption. While a recovery in tourist receipts
helped lessen the negative impact of net exports (0.1pp contribution to growth in 2006), rising energy
prices, vibrant domestic demand and a decline in
competitiveness led to a worsening in both the trade
and current account deficits, with the latter increasing to
5.9% of GDP in 2006 from 5.6% in 2005. In 2006,
Exports of goods and services rose 2.1% (2005: 4.7%)
with a forecast to jump to 4.0% in this year based on
the positive economic outlook for Cyprus main trading
partners. Imports of goods and services rose 2.2% in
2006 (2005: 3.1%) with a forecast increase to 3.6% in
2007 due to the strong investment outlook and the
continuing strength of private consumption.
The governments stringent fiscal policy has seen the
general government deficit declining to 1.5% in 2006
from 2.3% in 2005. Fiscal consolidation was supported
by increased revenues, predominantly via one-off
measures such as the tax amnesty (generating tax

revenue equal to percent of GDP in 2004 and almost

1 percent of GDP in 2005). Meanwhile fiscal
expenditure remained tight, with moderate public sector
wage increases and ceilings on the growth of public
consumption and investment expenditures. For 2007,
the budget is targeting a deficit of 1.5%. The General
Government Debt-to-GDP has continued to decline
from around 70% in 2005 to around 65% of GDP in
2006 with authorities targeting a decline to under 60%
of GDP in 2007. The biggest challenge facing the
government going forward is the aging of the population
and the related impact on the countrys fiscal position.
Eurostat estimates employment growth of 1.5% per
year until 2008, with unemployment at roughly 4.75%.
However, wage pressure should remain fairly
contained, being offset by higher participation rates and
increased inflows of by foreign workers.
EU related tax harmonisation, the decline in the excise
tax on automobiles in 2003, increased competition in
the telecommunications and air transportation sectors
and an appreciation of the Euro, lead to the moderation
of CPI inflation in 2004-05. During the first seven
months of 2006 inflation accelerated to 3.22%, as crude
oil prices soared, before declining to 1.63% in
December as oil prices fell and the Euro appreciated.
Inflation forecasts for 2007 range from between 2.02.5% and from 2.2-2.4% for 2008. Factors which are
expected to have a downward effect on inflation include
the reduction in car excise duties in October of 2006,
the continued liberalisation of sectors such as
telecommunications and energy and wage restraint in
the public sector, leading to HICP inflation of 1.3% in
2007. By 2008, the planned harmonisation-induced
increase in the lower VAT rate on certain goods and
services is expected to lead to inflation reading of 2.0%.
Inflation Developments

7%
6%

Maastricht Criteria

5%

7%
Core
HICP 6m Avg
Core 6m Avg
HICP

6%
5%

4%

4%

3%

3%

2%

2%

1%

1%

0%

0%

-1%

-1%

-2%

-2%
2003

2004

2005

2006

2007

In 2006, the deficit on the Current Account increased

by 10.1% to 840.5 or 5.9% of GDP, with an
approximate 1.1pps added via oil imports. A decline in
competitiveness, coupled with robust domestic
demand, resulted to the widened Trade Deficit by
18.3% yoy to 4.03 billion reaching 27.0% of GDP.
Service exports have remained strong, with the surplus
on the Services Account increasing by 6.7% to 3.3
billion. Net Foreign Direct Investment declined by
15.2% to 499 million. Initial full year forecasts see the
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 8

current account deficit and trade deficit remaining

essentially flat at 5.6% and 26.8% of GDP. However in
Q1 2007 goods exports have declined by 11.4% yoy
while goods imports increased by 3.4% yoy.
Fuelled by declining interest rates and strong capital
inflows, Private Sector Credit growth accelerated in
2006 to 17.5% (2005: 7.0%), as loans to households
grew by 5.3% while loans to businesses grew 17.5%. In
response to the stronger credit expansion and pickup in
inflationary pressure, the Central Bank raised rates by
25 bps following 3 equivalent rate hikes in 2005.
Cyprus has received approval for entry into the
Eurozone from January 2008. Cyprus has met all the
Maastricht Criteria, despite the fact that the Public Debt
to GDP ratio of 64.8% is slightly above the 60% limit.
Cyprus has been participating in the ERM II framework
since the 2nd May 2005. The central rate for the Cypriot
Pound was set at 0.585274 per Euro, the rate at which
the pound was linked unilaterally to the Euro at the
beginning of 1999, with a standard fluctuation band of
15%. Assuming a positive assessment the conversion
rate to the Euro will be set from mid-2007.

5. Serbia

The formation of a new government brings to an end

months of uncertainty and the hope that economic
reforms will receive a kick-start

The economy has recorded solid growth during the last

half decade, but if this is to continue, the new government
needs to ensure that rapid structural reforms are
undertaken, that privatisation is accelerated and
corruption attacked head-on.

Unemployment remains excessively high, elevated in the

short-run by the continued privatisation of inefficient state
and public enterprises.

An easing of fiscal policy is a concern given the

unbalanced structure of economic growth and the risks
that presents.

The appreciation of the Dinar and reigning in of credit

expansion via significant reserve requirements facilitated
the rapid decline in inflation from double-digits in 2005 to
just above 3% in May. This development faces the risk of
a sudden reversal with rampant wage growth and loose
fiscal policy fuelling domestic demand.

The combination of strong domestic demand and

predominantly export oriented domestic production has
pushed the current account deficit higher.

The political impasse which ensued following the

Parliamentary elections in January 2007 was resolved
this past May, with the formation of a new coalition
government. These developments have already
introduced a new air of stability, which has lead to the
European Commission resuming Stabilisation and
Association Process talks with Serbia as well as the
possibility of renewed cooperation with the IMF. This is

all the more crucial given the economic challenges

facing the country. As highlighted by the IMF, the two
primary macroeconomic challenges Serbia needs to
tackle are: (1) sustaining economic growth and (2)
entrenching low inflation.
Regarding the first point, GDP growth has averaged
6.5% since 2003. Growth slowed to 5.8% in 2006 from
6.2% in 2005 and 8.9% in 2004. The IMF forecasts a
further slowdown to 5.0% in 2007. Preliminary data for
the first quarter of 2007 point to GDP growth of 7.0%
yoy, inline with the growth recorded in the same quarter
of 2006. Anecdotal evidence indicates that this growth
was the result of a large rise in private consumption
(mirrored by a surge in imports as implied by the rise in
import taxes), driven by significant nominal wage
increases. Meanwhile, in response to political factors,
Q1 investment is expected to have slowed. These
developments echo concerns raised by the IMF
regarding the unbalanced growth of the Serbian
economy. This growth has been characterised by large
current account deficits and high unemployment the
latter the result of weak and inefficient state and socially
owned enterprises. Matters in 2006 were amplified by
rapid nominal wage growth of between 20-30%. The
rapid growth of domestic demand in the last two years
and lax fiscal policy in 2006, when combined with
significant domestic supply rigidities, has led to a
renewed deterioration of the current account
balance, with the deficit forecast to expand to 13.9% of
GDP in 2007 from 13.3% 2006. To finance this deficit,
Serbia relies heavily on external financing. To date, this
has proved sufficient as Serbia is considered to be an
attractive investment destination, endowed with welltrained and cheap labour, is well located geographically
and is a member of SE Europes free trade area
(CEFTA) which was established in 2006 in addition to
its free trade agreement with Russia.
Unemployment recently moderated to 28.2% of the
working population while unemployment for persons
under the age of 24 is roughly 48% according to official
Serbian statistics. In recent years unemployment has
been heavily influenced by the dominance of state and
socially owned enterprises which have, through largescale redundancies, contributed substantially to the
unemployment rate.
In 2006 fiscal policy slipped as the General
Government Balance shifted to a deficit of 1.6% of GDP
from a surplus of 0.7% in 2005. Fiscal prudence and
constraint are desperately needed. Thus far during JanMay of this year, the government posted a fiscal surplus
of RSD 30 billion. This surplus is the outcome of
politically related delays in implementing investment
spending and the jump in tax receipts due to the surge
in imports. Following delays in approving a new budget
due to the need to form a new government, the 2007
budget has now been drafted, approved by the
government and submitted for discussion in parliament.
The government is targeting either a balanced budget
or a minor deficit. A clearer indication of where the
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 9

current fiscal policy is heading can be seen via the

increase in real salaries and wages which have risen
roughly 18% yoy during Jan-Mar of this year. If a fiscal
deficit is maintained in 2007, this will lead to a further
increase in external debt as the government looks to
finance its spending. In 2006, the debt worsened to
62.1% of GDP from 59.0% in 2005.
In 2006 the Current Account deficit increased by
64.4% yoy reaching 13.3% of GDP. The current
account deficit had improved to 9.3% of GDP in 2005
from 12.8% in 2004. During Jan-Mar 2007, the Current
Account deficit increased by a further 85% reaching $
1.5 billion. Also, the deficit on the Trade Balance
increased by 40.6% reaching $ 1.8 billion, as exports
increased by 46% and imports by 43%. The Services
Account recorded a surplus in March, with the three
month deficit shrinking by 65% or $ -13 million. Finally
the Transfers Account saw its surplus shrink by 27%
to $416 million as transfer receipts slowed by 5.1% to $
864 and transfer payments increased by 32% to $ 448
million. The substantial net capital inflows (comprising
FDI of $ 4.3 billion and net medium and long term loans
of $ 2.8 billion) amounting to $ 6.9 billion in 2006,
continue to support a very high growth of expansion of
domestic demand, aided in turn by loose fiscal policy.
With the majority of foreign investment geared thus far
towards the export market, the demand for imports will
remain strong until the effects of investment spread to
import substituting goods sector.
The second challenge faced by the Serbian authorities
is entrenching low inflation. Rampant wage increases
and lax fiscal policy will only serve to sustain domestic
demand which will in turn drive inflation higher due to
domestic supply constrains. The roughly 18%
appreciation of the Dinar versus the Euro since mid2006 coupled with the large reliance on imports to
satisfy domestic demand has lead to the sustained
decline in inflation. CPI Inflation slowed to 6.0% yoy in
December 2006 and averaged 11.8% for the year down
from 16.1% in 2005. Inflation has slowed in each month
of 2007 reaching 3.1% in May from 3.4% and 4.2% in
April and March respectively. For 2007 the NBS
forecasts that core inflation will decline to 3.0% by yearend while headline will increase to around 6.0%.
The aforementioned inflationary developments have
allowed the NBS to embark on a series of rate cuts, the
most recent 50bps cut coming in May, reducing the Key
Policy Rate to 9.5%. The Serbian authorities have also
ceased intervention in the foreign exchange markets
and fully liberalised capital flows. However, keeping
inflation contained in 2007 will require containment of
domestic demand which has been fuelled by the growth
of bank credit. Credit to the Non-Government Sector
slowed significantly in 2006, having expanded by 17.5%
from +51.3% at end-2005 and by 44.3% at end-2004.

6. Albania

The economic growth outlook is contingent on further

privatisation especially within the energy sector which

played a substantial role in constraining growth in 2005

and 2006.

Inflation has been heavily influenced by the combination

of the domestic energy crisis and global rise in energy
prices. The inflation outlook for 2007 remains positive,
given the expected resumption of electricity imports and
the favourable base effects due to the surge in oil price
increases in 2006.

The current account deficit continues to be financed by

large inflows of remittances and portfolio investment,
comfortably covering the deficit which will expand slightly
in 2007, inline with a pick up in domestic demand and
investment.

Albanias economy, driven by strong domestic demand,

recorded average growth of 5.75% during the 2000-05
period. Based on IMF estimates, real GDP growth is
expected to have slowed to 5.0% in 2006, from 5.5% in
2005 and 5.9% in 2004. This is partly due to the
slowdown in the construction sector and to
postponements in public investment programs, both
due to the establishment of new procedures and
rigorous permits and procurement policies on the part
of the new government. In 2007 we should witness a
solid expansion of the Albanian economy. This will be
partly due to the continued export recovery which is
expected to raise growth to 6.0% yoy for the year. This
will be aided further by anticipated increase in electricity
generation
infrastructure
investment
and
the
implementation of public investment programs. The IMF
forecasts that total investment should reach 26.0% of
GDP in 2007 (25.1% in 2006) and is set to increase to
as much as 28.3% of GDP in 2010. While the recovery
in the export market brought the deficit in the Currant
Account to 6.0% to GDP in 2006, increased imports are
set to negate any pickup in exports, keeping the deficit
at around 6.0% in 2007.
During Jan-May 2007, the government has made a total
of $ 95 million in public investments, accounting for
46% of the target for the period. The majority of the
spending was allocated to the construction of the
Durres-Morina motorway. The largest share of public
spending was made up of domestic funds (78%), while
the remaining was foreign financing.
Despite rampant credit expansion, the domestic energy
crisis and higher international oil prices, inflation as
measured by the Consumer Price Index rose to a year
high of 3.2% yoy in August, but has since declined to
2.5% in December, bringing average inflation year-todate to 2.4%. CPI inflation has averaged 2.9% in
January and February 2007, as the central bank targets
a range of between 2-4% with year-end 2007 inflation
forecast to remain around the 3% mark.
In the first quarter of 2007, the current account deficit
increased by 40% yoy reaching 183 million. The
increase was once more attributable to the widening
trade deficit, which reached 448 million. On a positive
note, export performance improved with growth of 26%
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 10

outpacing the 22% growth of imports. More than half of

the foreign trade deficit has been financed by the inflow
of private transfers, or remittances from Albanian
nationals living abroad, having increased by 7.4% yoy.
Inward FDI increased by over 50% yoy in the first
quarter reaching a total of 86 million. The current
account deficit is forecast to 6.2% of GDP in 2007.
Private Sector Credit Expansion increased by 50.4% by
the end-December 2006, from growth of 73.6% in
December-2005 and 36.9% in December 2004. Credit
to households expanded by 66%, down from 79% in
2005. The high rates of credit expansion have been
driven by the growth in foreign currency deposits, the
result of the divergence in spreads between domestic
and foreign deposits which saw foreign currency
deposits increasing by 35% in 2005 vs. 7.3% in
domestic currency deposits. Credit growth, which has
been strongest in the corporate sector, is expected to
decelerate as companies reach their desired leverage
levels. On a regional basis Albania still has one of the
lowest credit penetration levels equal to 20.8% of GDP
at end-2006, from 14.9% of GDP at end-2005.

7. Former Yugoslav Republic of Macedonia

Economic growth remains driven by private consumption

and investment, with the prior benefiting from improved
confidence in the economy and the rise in disposable
income.

The government is aiming at a slight expansion of fiscal

policy in 2007 as it looks to promote economic growth.
Further declines in general government debt are
expected following the rapid decline in 2006 due to the
early repayment of its Paris Club debt.

Although somewhat mixed, recent readings of industrial

production are hinting at a recovery in various sectors
following the 2006 slow down.

Inflation accelerated in 2006 due to one-off events with

the resultant base effects ensuring that inflation remains
contained and below the 2006 level. Looking forward
harmonisation procedures will see a modest pick-up in
prices going into 2008.

The economy is estimated to have expanded by 3.2%

in 2006, slower than the 3.5% registered in 2005 and is
forecast to grow by 4.5% in 2007. Despite a solid
recovery in mining production aided by the reactivation
of metallurgical facilities, this moderation in growth
occurred due to output declines in the manufacturing
and energy sectors which lead to overall weak industrial
production performance, having increased by only 2.5%
for the year. Progress has been made when it comes to
structural reforms and has in turn resulted in an
improved business environment and improved
consumer confidence.
Investment increased by 9% in 2006 and is expected to
increase by 12% in 2007. Private consumption will
benefit from improved consumer confidence as
employment growth continues while low inflation will

help boost real incomes. The combination on strong

domestic demand and limited domestic supply will
sustain the negative contribution from net exports,
leading to deterioration in the trade balance. For the
foreseeable future, this will be financed by increased
workers remittances and FDI.
As economic activity increases, this will help sustain
employment growth forecast at 3.3% and 3.6% in 2007
and 2008 respectively. However, as the labour supply
increases in tandem the growth in job opportunities,
unemployment is expected to decrease only marginally
to around 35% in 2008 from 36% in 2007. Eurostat
estimates that wage growth will remain inline with
productivity growth.
Inflation as measured by the Consumer Price Index
(CPI), will remain below the level reached in 2006,
following the rapid increase in to 3.2% from 0.5% in
2005, but is expected to accelerate moderately in 2008.
In 2007 the inflation outcome will benefit from base
effects relating to both the surge in energy prices and
excise taxes in 2006. This outlook will receive additional
support due to the absence of any excessive demand
and the stable exchange rate vis--vis the Euro.
Pressure will arise from the acceleration in economic
growth in the following two years, the increase in
electricity prices to international levels as well as
adjustment of excise tax duties to EU levels. Thus far
inflation readings have remained subdued, rising by
1.0% yoy in April, from 0.8% yoy in March, averaging
0.8% for the year-to-April. The full year average
inflation forecast is 2.0%.
In March, Industrial Production (IP) remained strong
and increased by 9.6%, following the surge in February
of 14.9% yoy and brought Q1 output to 11.6% yoy.
Output in both mining and manufacturing rose by 0.8%
yoy and 14.2% yoy respectively, while the output in the
utilities sector slowed to 12.7% yoy. The production of
basic metals increased 74% yoy, food products and
beverages increased 17.0% yoy while production of
non-metallic mineral products increased 33.2% yoy.
Forecasts are for growth in industrial production of
6.0% for 2007.
The government deficit reached to -0.6% of GDP in
2006 from the 0.2% surplus recorded in 2005. The
budget 2007 will see a higher deficit of -1.2% of GDP.
The government has agreed to a wage ceiling by
keeping the government wage bill from rising faster
than total tax revenues. On the revenue side, active
steps have been taken to improve tax administration
through improvements in procedures relating to
registrations, collections, and the equal treatment for
taxpayers. Steps are being taken to consolidate and
rationalise the collection of social insurance
contributions and personal income taxes. Following the
increase in General Government Debt to 46.9% of GDP
in 2005, early repayment of Paris Club Debt in 2006
permitted a reduction in the debt to 39.5% in 2006 with
a further decline to 23.9% expected in 2007.
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 11

FYROM - Fiscal Outlook (% of GDP)

46.9%
40.0%

39.5%
32.9%

0.0%

0.0%

31.8%

0.2%

-0.6%
-1.1%

-1.2%
-1.5%

General Government Balance

Gross Government Debt
2003

2004

2005

2006

2007 (f)

2008 (f)

The current account deficit declined to -0.7% of GDP in

2006 from -1.4% in 2005. The large inflow of workers
remittances and cash exchanges reduced the deficit in
2006 by almost a full percentage point. In the first two
months of 2007, the current account recorded a
cumulative surplus of $ 12.5 million vs. a deficit of -$
26.9 million during the same period of 2005. For the two
month period, the Trade deficit increased by 11.5% to $
178 million while Goods exports rose by 62.0% and
goods imports rose 43.2%. The ratio of exports to
imports increased to 71.1% from 62% in 2005. The
deficit on the Services Account decreased by 20%,
while the surplus on the Incomes Balance increased by
150% to $ 10.8 million. The surplus on the Current
Transfers account increased by 35% to $ 181.4 million
of which 97% was private transfers. Meanwhile, net FDI
slowed to $ 7.1 million from $ 11.2 in 2005.
Private Sector Credit Expansion accelerated in 2006,
increasing by 23% in 2006 and is forecast to increase
by 20% in 2007.

8. Turkey

In 2006, Turkey recorded stronger GDP growth of 6.1%

despite the rapid increase in interest rates. However,
private consumption has slowed significantly and with
interest rates expected to remain at their current levels,
the economy is expected to slow further to 5.0% in 2007.

The government continues to maintain tight control over

its budget, posting a large and increasing primary
surplus, which is expected to reach 6.7% of GDP in 2007.

Although inflation has moderated to 9.6% in May 2007, it

remains highly volatile and will most likely exceed the
central banks target of 4.0% by the end of 2007.

The decline in private consumption and investment will

impact positively on the trade account leading to a
decline in the current account deficit. The deficit
continues to be financed by large FDI and portfolio
inflows.

Turkey registered GDP growth of 6.1% in 2006 with

economic activity forecast to decline to 4.9% in 2007 as
domestic demand continues to contract in the presence
of persistently high interest rates (having risen by 425
bps since Q2 2006). As a result, growth in private
consumption, which constitutes roughly 55% of GDP,
slowed to 5.2% yoy from 9.1% in 2005. With interest

rates set to remain at their current level for 2007,

private consumption is forecast to slow further, with
growth of 3.8% in 2007. Investment, constituting around
17% of GDP, also contracted registering growth of 14%
yoy from 24% and 32% in 2006 and 2005 respectively
and is expected to slow inline with private consumption,
with growth of 11.2% in 2007. Imports of Goods and
Services responded to the consumption and investment
slow-down registering growth of 7.1% yoy from the
11.5% in 2005 and is expected to slow further to 6.0%
in 2007. The rapid depreciation had little immediate
impact on the Export of Goods and Services, with
growth remaining flat at 8.5% in 2006. The slower pace
of imports led to a positive contribution to growth of net
exports of around 0.3pps. The contraction in GDP
growth for 2007 should have positive knock-on effects
for the current account deficit, declining to 7.2% of GDP
from 7.7% in 2006. However a central risk for 2007
remains developments abroad as they relate to the
level of global risk aversion and the implications for
emerging markets.
Public finances remained on track in 2006, registering
an increase in the Headline (Public Sector) Primary
Balance to 6.7% of GDP from 6.2% in 2005. This
outcome was aided by the governments decision to
freeze, in line with an IMF request, roughly 0.3% of
GDP of fiscal expenditure in the final months of 2006 to
lessen the impact of higher than forecast expenditure.
The high growth of expenditure was related primarily to
additional spending in the health care sector (with
earlier measures having failed to deliver the desired
savings). The General Government Deficit increased
to -0.6% of GDP from 0.2% in 2005. For the coming
year, the slow down in the economy is expected to
pose a challenge for the government as it attempts
further fiscal consolidation. With the General
Government Deficit set to increase to 2.2% of GDP in
2007, the authorities have made a commitment to
target a headline primary balance of 6.5% of GDP. To
achieve this target, the government has planned to 1)
slow the pace of hiring of civil servants, 2) limit the
increase in the nominal tax brackets to the mandatory
minimum while 3) substantially raising electricity and
gas retail prices with the aim of improving the financial
performance of state enterprises, shifting the
programme adjustment to outside the central
government.
In 2006 the CPI inflation averaged 9.6% for the year
having declined to 9.7% in December from the high of
11.7% reached in July. The year as a whole posed a
challenge for the monetary authorities with inflation
reeling from the effects of the spikes in fresh food and
vegetable prices, higher energy prices and the sudden
broad decline in the value of the lira. More recently,
following the disappointing start to the year which saw
CPI inflation increase to the year high of 10.9% in
March, readings have now to 10.7% in April and 9.2%
in May. Even though the expectation is for further a
correction in inflation dynamics in the coming months
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 12

due to favourable base effects the strength of the lira

and the lagged effect of monetary tightening will
continue to prevent a rapid deceleration in prices. In
fact, consumer price inflation is running at a pace which
is more than twice as much as the central banks target.
The CBRT itself highlights the inflationary risk posed by
uncertainties relating to unprocessed food and energy
prices. Due to warmer-than-usual weather and
declining water resources, food production could be
adversely affected in the coming months. This should to
some extent be offset by the cut in VAT on food prices.
However, the Central Bank of Turkey forecasts that
inflation should fall to below 8.0% this summer and
decline gradually thereafter to 4.0% by mid-2008.
Inflation Developments (YoY % Change)
12%

12%

11%

11%

10%

10%

assertively, increasing the Overnight Borrowing Rate by

425bps from 13.25% to 17.50% while the Overnight
Lending Rate was increased by 225bps to 22.50%. In
addition, the CBRT undertook daily FX auctions and ad
hoc direct FX market interventions and drained excess
liquidity from the market by increasing short and long
term debt issuance. With the CBRT sticking firmly to
their inflation target of 4% for 2007, monetary policy
seems set to remain restrictive and based on prudent
policies. However, the rapid decline in domestic
consumption and slowing investment may open the
door to the possibility of a rate cut anywhere from the
second quarter of the year onwards. Private Sector
Credit Expansion slowed in 2006, increasing by 40%
yoy from growth of 53.5% in the same period 2005 and
54.4% in 2004 while household credit rose by 47.6%
while credit to businesses rose by 38.7%. For 2007
credit expansion is expected to slow to 29.5%.
18.5

9%

9%

Turkey - Monetary Policy Response To Exchange Rate

2.15

17.5

8%

8%

17.0

2.10

Central Bank O/N Rate (LHS)

EUR / TRY (RHS)

2.05

16.5

Headline
Core

7%

7%

6%

6%
2004

2005

2006

2007

2.00

16.0

1.95

15.5

1.90

15.0

1.85
1.80

14.5

1.75

14.0

Turkeys Current Account deficit has gradually

worsened, increasing from 3.4% of GDP in 2003 to
7.7% in 2006. With private consumption and investment
expected to contract this year, the deficit is set to shrink
to 7.2% of GDP. The effect of this contraction is already
evident for Jan-Mar 2007, with the current account
deficit increasing a far smaller 3.9% yoy or 6.8 billion
versus the 41.9% increase for the same period of 2006.
Developments in the current account are largely the
result of the Trade Account, which during the same
period shrank by 0.4% yoy to 6.5 billion for the
quarter compared to the 37.8% increase last year.
Interestingly enough, the improvement came not
through a decrease in Import of Goods, having risen
by 17% yoy (16.4% in 2006) but through a surge in
Exports of Goods which rose 24.7%% to 18.4 billion
versus the 8.9% growth registered in 2006. Export
coverage of imports was 73% for the three months. The
surplus on the Services Account improved marginally
to 884 million from 870 in the same period of 2006,
due to a modest recovery in tourism. Net Foreign
Direct Investment has soared to 7.9 billion ( 795
million Q1 2006) bringing coverage of the current
account to 115%. Following the market concerns in
2006 which saw substantial outflows, Portfolio
Investment recovered in Q1 2007 posting growth of
36% for the quarter.

2.25
2.20

18.0

1.70

13.5

1.65

13.0

1.60

12.5

2005

1.55

2006

2007

In 2006 monetary policy was largely driven by the

events which unfolded in the international financial
markets during the May to July period. The Turkish Lira
depreciated by as much as 20% vs. both the Euro and
US Dollar. The Central Bank responded swiftly and
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 13

9. Economic Data Greece

Selected Economic Indicators
(% change or as otherwise noted)
Yearly Data

2002

2003

2004

2005

2006

2007

Real GDP Growth

Gross Fixed Total Investments
- Construction
- Equipment
Manufacturing production
Unemployment (percent)
Employment
Consumer Price Index (year average)
Producer Price Index (year average)
Unit Labor Cost
Credit Expansion (Private Sector)*
Deficit (as % of GDP)
Current Account (as % of GDP)

3.8
5.7
3.7
6.9
-0.1
10.9
0.1
3.6
2.3
6.0
16.9
-5.2
-9.7

4.8
13.7
10.9
18.3
-0.4
10.4
1.3
3.5
2.3
1.2
19.5
-6.2
-10.0

4.7
5.7
3.6
8.0
1.2
11.0
2.9
2.9
3.5
4.0
19.5
-7.9
-9.5

3.7
-1.4
-4.4
0.5
-0.8
10.4
1.3
3.5
5.9
4.1
21.8
-5.5
-9.2

4.3
12.7
21.6
3.5
1.4
9.3
2.4
3.2
6.9
4.6
20.6
-2.6
-10.9

3.9
8.5
8.9
8.0
2.5
8.3
1.8
2.8
2.0
4.0
18.0
-2.4
-9.9

2005
IV

II

III

IV

3.0
35.2
-0.8

4.1
13.6
0.9

6.6
13.1
1.0

8.1
4.6
0.7

8.0
-19.5
0.8

4.4 (03/07)
2.2 (03/07)
3.0 (03/07)

21.8
28.7
33.5
14.7
3.7

22.3
28.6
33.6
15.4
4.2

22.1
25.9
32.3
15.9
2.9

22.3
24.4
29.9
17.6
6.5

20.6
23.9
25.8
16.6
3.7

19.9 (03/07)
22.7 (03/07)
25.5 (03/07)
15.9 (03/07)
3.3 (03/07)

3.7
3.0
7.7
17.8

3.3
2.5
9.2
15.7

3.2
2.5
8.6
14.2

3.4
2.7
6.8
11.8

2.9
3.0
2.2

2.5 (04/07)
3.0 (04/07)
0.7 (03/07)

0.87
6.93
12.31
4.73
2.63
3.56

0.92
7.02
12.52
4.75
2.95
3.77

0.96
7.12
12.62
4.81
3.31
4.28

0.99
7.24
12.71
4.89
3.62
4.19

1.06
7.32
12.86
5.09
3.86
4.03

1.11 (03/07)
7.45 (03/07)
13.06 (03/07)
5.13 (03/07)
4.25 (04/07)
4.40 (04/07)

3.8
2.9
1.7
2.8
-0.2

4.2
3.4
9.9
2.1
5.7

4.2
3.9
17.1
2.9
13.1

4.5
3.3
10.7
7.8
8.7

4.4
2.8
13.6
8.3
11.8

4.6 (03/07)
2.8 (03/07)
15.8 (03/07)
9.8 (03/07)
15.1 (03/07)

14,200.9
41,747.8
-27,546.9
15,548.0
56.4
-12,298.9
-679.0
7,323.6

3,652.3
12,791.4
-9,139.0
1,876.5
20.5
-7,262.5
422.9
1,009.0

8,036.0
25,763.8
-17,727.8
4,959.2
30.0
-12,768.6
1,009.8
2,113.9

12,176.1
38,247.2
-26,071.1
12,099.6
46.4
-13,971.5
888.2
5,646.8

16,154.3
51,440.6
-35,286.3
14,687.2
41.6
-20,599.0
953.8
8,115.4

3.796,9 (03/07)
13.266,2 (03/07)
-9.469,4 (03/07)
2.375,3 (03/07)
41.6
-7.094,1 (03/07)
-2.051,8 (03/07)
11.051,9 (03/07)

3,663.9
31.5
67.9

4,122.3
44.4
76.3

3,693.8
20.7
70.9

3,931.1
16.2
73.6

4,394.1
19.9
80.9

4.973,2 (05/07)
32,5 (05/07)
90,0 (05/07)

Source: National Accounts, 2007 Official and Alpha Bank Research

Quarterly Data
Economic Activity (period average)
Retail Sales Volume
Construction Activity
Industrial Production (Manufacturing)
Credit Expansion (end of period)
Private Sector
Consumer Credit+Other
Housing
Business
Tourism
Prices (end of period)
Consumer Price Index
Core Inflation
Producer Price Index
Dwelling Price Index (17 urban areas)
Interest Rates (period average)

2006

Period
(cumulative)

(on outstanding amounts)

Savings
Short-term Business Loans
Consumer Loans (up to 1 year)
Housing Loans (over 5 years)
12 month Treasury Bill
10 year Bond Yield
National Accounts
Real GDP
Final Consumption
Investment
Exports
Imports
Balance of Payments (in mn - Cumulative)
Exports of Goods
Imports of Goods
Trade Balance
Balance of Services
Balance of Services / Trade Account (%)
Current Account
Direct Investments
Portfolio Investments
Athens Stock Exchange (end of period)
Composite Index
% change
Market Capitalization ASE (% of GDP)

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 14

9. Economic Data Southeastern Europe

Romania
Real Economy
Real GDP
Private Consumption
Public Consumption
Gross Fixed Capital Formation
Exports (Goods & Services)
Imports (Goods & Services)
Consumer Prices
Unemployment
General Government (%GDP)
Revenue
Expenditure
Overall Balance
Gross Debt
Monetary
Credit to Non-Government
Short-Term Interest Rate
Long-term Interest Rate
Balance of Payments (% GDP)
Current Account Balance
Trade Balance

2003

2004

2005

2006

2007 (f)

5.2
8.4
7.7
8.6
8.4

8.5
14.6
-4.9
11.1
13.9

4.1
9.6
9.0
12.6
8.1

7.7
13.8
2.5
16.1
10.6

6.7
11.9
4.8
14.6
9.4

6.3
9.9
5.1
13.7
8.1

16.0
15.3
7.0

22.1
11.9
8.1

16.6
9.1
7.2

23.0
6.6
7.4

21.6
4.6
7.2

17.1
4.5
7.1

32.1
33.6
-1.5
21.5

31.1
32.6
-1.5
18.8

32.4
33.7
-1.4
15.9

30.1
38.8
-1.9
12.4

30.4
39.8
-3.2
12.8

31.0
40.4
-3.2
13.1

17.7
-

37.9
19.1
-

45.8
8.4
-

54.5
7.4
7.3

47.9
-

-4.8
-7.6

-5.0
-8.7

-8.7
-9.8

-10.3
-12.1

-12.1
-13.9

-12.3
-14.8

Source: IMF, Central Bank, Eurostat, Alpha Bank Economic Research

Bulgaria
Real Economy
Real GDP
Private Consumption
Public Consumption
Gross Fixed Capital Formation
Exports (Goods & Services)
Imports (Goods & Services)
Consumer Prices
Unemployment
General Government (%GDP)
Revenue
Expenditure
Overall Balance
Gross Debt
Monetary
Credit to Non-Government
Short-Term Interest Rate
Long-term Interest Rate
Balance of Payments (% GDP)
Current Account Balance
Trade Balance

2003

2004

2005

2006

2007 (f)

2008 (f)

5.0
5.5
7.7
13.9
10.7
16.4
2.3
13.7

6.6
5.9
3.8
13.5
12.7
14.5
6.1
12.0

6.2
6.1
2.8
23.3
8.5
13.1
6.0
10.1

6.1
7.5
2.4
17.6
9.0
15.1
7.4
9.0

6.1
7.8
3.5
16.0
10.0
12.1
4.2
8.2

6.2
8.0
4.0
14.0
9.6
11.6
4.3
7.4

40.0
40.9
-0.9
45.9

41.4
39.3
2.2
37.9

41.4
39.5
1.9
29.2

39.9
36.6
3.3
22.8

39.3
37.3
2.0
20.9

39.6
37.6
2.0
19.0

48.3

48.7

32.3

24.6

3.7
6.4

3.7
5.3

3.6
3.8

3.1
4.4

Turkey

Overall Balance
Gross Debt
Balance of Payments (% GDP)
Current Account Balance
Trade Balance

Real Economy
Real GDP
Private Consumption
Public Consumption
Gross Fixed Capital Formation
Exports (Goods & Services)
Imports (Goods & Services)
Consumer Prices
Unemployment
General Government (%GDP)
Revenue
Expenditure
Overall Balance
Gross Debt
Balance of Payments (% GDP)
Current Account Balance
Trade Balance

2003

2004

2005

2006

2007 (f)

2008 (f)

1.8
2.0
6.0
1.2
-0.7

4.2
6.3
-5.5
10.0
5.1

3.9
4.7
3.4
2.7
4.7

3.8
4.0
2.4
5.2
2.1

3.8
3.5
3.5
4.8
4.0

3.9
3.5
3.9
4.8
4.0

-1.0
4.0
4.1

9.6
1.9
4.6

3.1
2.0
5.2

2.2
2.2
4.7

3.6
1.3
4.8

3.9
2.0
4.8

38.8
45.1
-6.3
69.1

38.8
42.9
-4.1
70.3

41.2
43.6
-2.3
69.2

42.4
43.9
-1.5
65.3

42.6
44.0
-1.4
61.5

42.6
43.9
-1.4
54.8

-2.2
-23.9

-5.0
-25.6

-5.6
-25.0

-5.9
-27.0

-5.6
-26.8

-5.4
-26.6

Source: IMF, Central Bank, Eurostat, Alpha Bank Economic Research

Serbia
Real Economy
Real GDP
Consumer Prices
Unemployment
General Government (%GDP)
Revenue
Expenditure
Overall Balance
Gross Debt
Monetary
Credit to non-government
Repo rate
Balance of Payments (% GDP)
Current Account Balance
Exports
Imports
Trade Balance
FDI

2002

2003

2004

2005

2006 (e)

2007 (f)

4.5
21.2

2.3
11.3

9.3
9.5

6.3
17.7

5.5
12.0

5.0
8.1

13.3

14.6

18.5

42.8
47.3
-4.5
85.4

42.7
46.0
-3.3
79.2

44.5
44.8
-0.3
60.2

44.4
43.5
0.8
52.1

44.6
42.2
2.6
45.9

3.0
41.1

49.6
9.7

25.1
10.6

47.9
16.3

62.6
15.9

33.7
-

-12.9
15.5
40.7
-25.2
3.6

-12.3
14.8
38.4
-23.6
6.8

-14.8
16.6
46.8
-30.2
4.2

-10.2
19.3
43.8
-24.5
7.7

-10.8
22.6
47.7
-25.0
6.5

-9.3
-24.1
-

Source: IMF, Central Bank, Eurostat, Alpha Bank Economic Research

-5.5
-13.7

-6.6
-14.9

-12.0
-20.2

-15.8
-21.5

-16.6
-22.1

-17.2
-22.7

Source: IMF, Central Bank, Eurostat, Alpha Bank Economic Research

Real Economy
Real GDP
Private Consumption
Public Consumption
Gross Fixed Capital Formation
Exports (Goods & Services)
Imports (Goods & Services)
Consumer Prices
Unemployment
General Government (%GDP)

Cyprus

2008 (f)

2003

2004

2005

2006

2007 (f)

2008 (f)

5.8
7.2
-2.4
10.0
16.0
27.1
25.3
10.5

8.9
10.6
0.5
32.4
12.5
24.7
10.1
10.3

7.4
9.1
2.4
24.0
8.5
11.5
8.1
10.2

6.1
5.2
9.6
14.0
8.5
7.1
9.3
9.9

4.9
3.8
9.0
11.2
6.7
6.0
8.2
9.9

5.9
5.0
3.5
10.9
6.4
5.5
5.8
9.6

-11.3
85.1

-5.8
76.9

-0.3
69.6

-0.6
60.7

-2.2
56.6

-1.8
54.3

-3.4
-8.1

-5.2
-10.3

-6.3
-10.9

-7.7
-9.9

-7.2
-9.0

-6.6
-8.1

Source: IMF, Central Bank, Eurostat, Alpha Bank Economic Research

FYROM
Real Economy
Real GDP
Private Consumption
Public Consumption
Gross Fixed Capital Formation
Exports (Goods & Services)
Imports (Goods & Services)
Consumer Prices
Unemployment
General Government (%GDP)
Overall Balance
Gross Debt
Balance of Payments (% GDP)
Current Account Balance
Trade Balance

2003

2004

2005

2006

2007 (f)

2008 (f)

2.8
-

4.1
-

3.8
-

3.1
4.0
3.0
9.0
15.2

4.3
4.5
3.0
12.0
14.5

5.3
4.6
3.0
15.0
15.9

1.1
36.7

-0.4
37.2

0.5
37.3

14.5
3.2
36.6

13.5
2.0
35.8

14.3
2.5
34.7

-1.1
42..9

0.0
40.0

0.2
46.9

-0.6
39.5

-1.2
32.9

-1.5
31.8

-3.2
-18.4

-7.7
-20.7

-1.4
-16.2

-0.7
-17.6

-2.0
-19.3

-2.6
-20.5

Source: IMF, Central Bank, Eurostat, Alpha Bank Economic Research

Albania
Real Economy
Real GDP
Consumer Prices
General Government (%GDP)
Revenue
Expenditure
Overall Balance
Gross Debt
Monetary
Credit to non-government
Balance of Payments (% GDP)
Current Account Balance
Exports
Imports
Trade Balance
FDI

2002

2003

2004

2005

2006 (e)

2007 (f)

2.9
5.2

5.7
2.4

5.9
2.9

5.5
2.5

5.0
2.5

6.0
3.0

24.7
31.4
-6.6
65.0

24.5
29.0
-4.5
61.8

24.1
29.2
-5.1
56.5

24.6
28.3
-3.8
54.9

24.6
28.7
-4.1
55.0

24.7
28.2
-3.5
54.5

41.0

31.1

36.9

69.1

43.2

35.3

-10.0
20.5
46.3
-25.9
3.0

-8.1
20.8
45.9
-25.1
3.2

-5.5
21.5
43.2
-21.7
4.6

-7.0
21.9
45.1
-23.2
2.9

-8.1
22.7
46.2
-23.5
3.2

-7.3
23.6
46.2
-22.5
3.1

Source: IMF, Central Bank, Eurostat, Alpha Bank Economic Research

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 15

This report reflects the opinions of the analysts of Alpha Banks Economic Research Division. Any information in this report is based on
data obtained from sources considered to be reliable; Alpha Bank takes no responsibility for any individual investment decisions based
thereon.
No part of this publication may be reproduced in any form without the permission of the publisher.
Please address any comments or inquiries to: Michael Massourakis, Group Chief Economist
Economic Research Division, Panepistimiou 43, Athens GR
Tel: (+30) 210-326-2828 Fax: (+30) 210-326-2812
E-mail: dom@alpha.gr Web Site: www.alpha.gr

GREECE AND SOUTHEASTERN EUROPE

AND FINANCIAL
OUTLOOK
ECONOMIC
The next Greek and Southeastern Europe Economic and Financial Outlook
will be published
in August
2007. PAGE 16