Greece and Southeastern Europe
Economic Research Division
May 2011 - No 78
Economic & Financial Outlook
Executive Summary
1. GREECE
Impressive fiscal adjustment and structural reform in 2010
continues this year with a more determined effort, including an
extensive program of privatisation and real estate assets
development, so as to achieve the fiscal deficit target of 7.5% of
GDP and to ease the way to debt sustainability by assets sale
revenues being used to retire debt.
GDP growth is to be supported in 2011 by investment stabilizing
and a boom in net exports, following a substantial improvement in
unit labour cost growth and competitiveness leading already to a
31% yoy growth in exports, supporting a 0.8% qoq GDP growth in
Q1 2011.
With unemployment rising already to 16%, a substantial
improvement on the supply-side of the economy is underway,
which in combination with privatisation and further structural
reform, is expected to strengthen economic recovery and fiscal
adjustment from 2012 onwards.
2. ROMANIA
GDP grew by 1.6% yoy in Q1 of 2011, which is the first annual
increase since Q4 of 2008, signalling gradual recovery. The new
24-month 5.3 billion loan program from the EU, the IMF and the
World Bank underpins expectations of a sustainable recovery.
The successor agreement with the IMF envisages a reduction of
the budget deficit to 4.4% of GDP in 2011 and 3% of GDP in 2012
from 6.5% of GDP in 2010. The implementation of the 2011 Budget
in progressing satisfactorily.
The current account deficit stabilised at 4.2% of GDP in 2010. In
2011, it may widen moderately as domestic demand picks up in the
latter quarters of 2011.
3. BULGARIA
GDP growth turned positive in H2 2010 contributing to a,
marginally positive 0.2% growth in 2010. In Q1 2011, GDP grew by
2.5% yoy with net exports continuing to underpin the recovery.
The budget deficit widened to 3.9% of GDP in 2010 from 0.8% of
GDP in 2009. The medium-term plan of the government is to
reduce the budget deficit to 2.5% of GDP in 2011, 1.5% of GDP in
2012 and 1% of GDP in 2013.
In Q1 2011 there was a surplus in the current account equal to
0.7% of the expected GDP for 2011 from a deficit of 1.5% of GDP
in Q1 of 2010. Net FDI, portfolio and other investment remained
relatively subdued.
4. CYPRUS
GDP grew by 1.8% yoy in Q1 of 2011 from 1.0% in 2010 and -1.7%
in 2009. A rebound in trade, tourism and transport services helped
the economy to exit the recession.
S&P downgraded the countrys long term sovereign rating by one
notch to A- citing increased vulnerability of its banking sector from a
potential debt restructuring in Greece.
In 2010 the budget deficit narrowed to 5.3% of GDP.
5. SERBIA
GDP grew by 1.7% in 2010. In Q1 2011 GDP grew by 3% yoy. The
improved outlook is mirrored in the recent upgrade of its rating to
BB from BB- by S&P.
The budget deficit was 4.5% of GDP ion 2010 lower than the IMF
prescribed target of 4.8%. However concerns may resurface as
elections draw nearer.
Inflationary pressures have risen substantially. Inflation was 11.2%
in January 2011. The Central Bank has increased official rates to
12.25% and has tried to shift the volume of lending to dinar from fx
via fine-tuning the reserve requirements.
Lower remittances contributed to an increase in the current
account deficit despite continued narrowing of the trade deficit.
6. ALBANIA
Albania GDP growth in 2010 stood at 3.9%, with Q4 2010 at 5.4%
indicating a pick up in economic recovery.
General budget turned to a deficit of ALL 11.8bn (EUR 83.6mn) in
Q1 2011 from a surplus of ALL 700mn a year ago.
The current account deficit widened to $ 229 million or 2.3% of
projected GDP in the period Jan.-Feb. 2011.
7. FORMER YUGOSLAV REPUBLIC OF MACEDONIA
Economic activity registered a moderate increase of 0.7% during
2010 boosted by strong export growth and investment spending,
particularly in the construction sector.
Increasing international oil and food prices contributed to the
acceleration of headline inflation in 2011 from 3% in December
2010 to 4.8% in April 2011.
Inflationary pressures have re-emerged with CPI yoy change at 3%
at end-2010..
8. UKRAINE
The economy recorded GDP growth of 5.2% yoy in Q1 2011 driven
by export-oriented and processing industries.
he IMF loan agreement has been put on hold. The 3rd loan
tranche worth $ 1.6 billion which was scheduled to be disbursed in
March 2011 has not been released as the IMF is awaiting progress
with reforming the pension system.
The current account deficit widened to 0.5% of GDP in Q1 2011.
9. TURKEY
The economy has fully recovered to its pre-crisis level as GDP
grew by an impressive 8.9% in 2010 more than offsetting the 2009
GDP decline of -4.8%. Moreover Q4 2010 GDP growth of 9.2% yoy
has been a welcome surprise.
Inflation,
at 4.3% in April 2011, remains relatively subdued.
However the risk of overheating is still very much alive as the
current account deficit remains bloated. In Q1 2011 import growth
accelerated to 46% on an annual basis leading to a doubling of the
current account deficit from its year ago.
The fiscal consolidation efforts of the government remain on track
despite forthcoming elections. In Q1 2011 higher public revenues
(up by 10.5% yoy) more than covered the increase in public
expenditures (up by 6.6% yoy). However the increase in public
revenues engineered by a rapidly growing domestic demand may
not be sustainable.
1. GREECE adjustment and structural reform measures adopted in
Table 1. Basic Conjunctural Indicators
the last 12-months have produced a sizable fiscal
(average annual percentage changes) adjustment and are contributing to a relatively fast change
2008 2009 2010 2011
available period
of the existing institutional and organizational structure of
Retail sales volume -1.4% -9.3% -6.8% -12.2% Jan-Feb the country. This in turn contributes to the improvement in
Automobile sales -7,0% -17.4% -37.2% -55.9% Q1 2011
Tax on mobile telephony 5.3% 13.2% 37.1% -19.7% Q1 2011
Greeces international competitiveness and its medium
VAT revenue 8.4% 5,0% 4.8% 3,6% Jan-Apr and long term growth potential and, therefore, to an even
Consumption tax on fuels 28.9% 18.6% 30.3% -22,6% Jan-Apr
Private Consumption 3,0% -1.8% -4.5% faster fiscal consolidation. More specifically:
Government Consumption 1,0% 7.6% -6.5%
Building activity (permits) -15.6% -14.3% -10.9% -62.7% Jan A fiscal adjustment of 5 pps of GDP was recorded in
Cement production
Public investment
-3.1% -21.4% -14.3%
9.3% -2.8% -30.7%
-27.4%
-42.5%
Q1 2011
Jan-Apr
2010. The general government deficit (GG deficit)
Fixed investment -7.5% -11.2% -16.5% declined to 10.5% of GDP from 15.5% of GDP in 2009.
Change in Stocks and Stat. Dis. 47.9% -142.9% -120,0%
Unemployment 7.6% 9.5% 12.4% 15.9% Feb
Moreover, the implementation of the central government
Manufacturing production -4.7% -11.2% -4.8% -7,0% Q1 2011 budget in January-April 2011 shows that despite a
Economic sentiment (1998-2006=100) 95.6 76.3 75.1 77,0 Jan-Apr
-Industry 91.9 72.1 75.8 79,0 Jan-Apr possible net current revenues shortfall of about 2.5 bln
-Consumer Confidence -46,0 -45.7 -64,0 -68.8 Jan-Apr in 2011, the projected cut of current expenditure by an
PMI (Manufacturing) 50.4 45.3 43.8 44.7 Jan-Apr
Exports of goods - excluding oil (El.Stat.) 3.2% -15.9% 8.5% 12,5% Q1 2011 even higher 4.2 bln implies an overall cut of the current
Exports of goods (El.Stat.) -18,2% 10,8% 31,3% Q1 2011 budget deficit by about 1.7 bln. In fact, as indicated by
Imports of goods - excluding oil (El.Stat.) 4.5% -20.2% -10.7% -16,9% Q1 2011
Tourist arrivals (airports) -1.4% -6.7% -0.3% 5.4% Jan-Apr the European Commission (Spring 2011) the 2011 budget
Tourism receipts (BoP) 2.8% -10.6% -7.6% 4,2% Q1 2011 foresees the implementation of fiscal consolidation
Exports goods & services 3.3% -18.3% 3.8%
Imports goods & services 4,0% -18.6% -4.8% measures of more that 6.0 pps of GDP, while the required
GDP growth
Inflation (CPI)
1,0% -2,3%
4.2% 1.2%
-4,4%
4.7%
-4.8%
5,0%
Q1 2011
Jan-Apr
reduction of the deficit to 7.5% of GDP requires an
Current Account (% of GDP) -13,0 -10.1 -9.4% -3,1% Q1 2011 adjustment of only 3.0 pps of GDP. Moreover, the
Source: Bank of Greece, Hellenic Statistical Authority (El.Stat.)
Government has indicated that it is ready to apply
M ACROECONOMICS DEVELOPMENTS: A year has passed additional measures amounting to 2.0 pps of GDP in
from the enactment of Greeces fiscal adjustment, growth 2011, in order to compensate for possible shortfalls in
and structural reform program, agreed with EC-ECB-IMF other areas. Therefore, the setting is in place for a further
(The Troika) in May 2010, under the conditionality reduction of the GG deficit to 7.5% of GDP in 2011.
Memorandum of Understanding (MOU) linked to the release
Nevertheless, the Greek GG debt/GDP ratio reached
of a 110 bln loan to Greece. In this short period of time,
and under the worse possible international publicity,
142.8% of GDP at the end of 2010 and is expected to
Greece has made substantial progress towards reach 153% of GDP at the end of 2011. However, both
achieving the programs ambitious objectives, which the GG deficit and the GG debt for 2009 and 2010 have
were the following: a) To achieve a substantial front- been inflated by the incorporation into the general
loaded reduction in fiscal deficit that is necessary to government of the deficits and the liabilities of a multitude
restore public debt sustainability. b) To implement the of state controlled entities (businesses and
needed structural reforms, aiming to a fundamental organizations), which in other EU countries fall outside
the scope of general government.
change of the countrys growth model, with the new
model to be based on international competitiveness and The MOU, as adjusted following the successive reviews
on investment and exports, thus to underpin GDP and of progress achieved in both fiscal adjustment and
employment growth as well as the sustainability of the structural reform in the 12-month period between May
countrys external accounts. c) To preserve financial 2010 and May 2011, has culminated at the undertaking
stability and adequate liquidity in the banking sector of the by the Greek Government of The Medium Term Fiscal
country. Strategy 2012-2015, which envisages a further fall of the
GG deficit to 6.5% of GDP in 2012 and to below 2.6% of
However, this program is very demanding and relatively
long term in nature. It requires the absolute and long GDP in 2014 and 1.0% of GDP in 2015. Moreover, with
lasting determination and ability of the government to this new program the Greek government is now set to
pursue consistently its objectives, overcoming implement an ambitious privatization-cum-real estate
successfully the multitude of impediments and setbacks management program yielding 50 bln up to 2015.
that are certain to arise in the process. Nevertheless,
Diagramme 1. Greek Debt dynamics with and without
despite the substantial challenges which Greece is still
privatization revenues
facing, one cannot fail to see that the extensive fiscal 160,0%

140,0%
Contents
1. Greece ........................... Error! Bookmark not defined. 120,0%
2. Romania...................................................................... 12 100,0%
3. Bulgaria ....................................................................... 14
4. Cyprus......................................................................... 16 80,0%
Alpha (with privatization)
5. Serbia.......................................................................... 17 60,0%
European Commission (without privatization)
European Commission (with privatization)
6. Albania ........................................................................ 18
40,0%
7. Former Yugoslav Republic of Macedonia ................... 19
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032

8. Ukraine........................................................................ 20
9. Turkey ......................................................................... 21
10. Economic Data Greece .......................................... 23
11. Economic Data Southeastern Europe .................... 24 Even on the basis of the conservative assumptions of the
Troika concerning nominal GDP growth in 2011-2015, the

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 2
implementation of this program would imply a peak of the
GG debt/GDP ratio to around 153% of GDP in 2011 and
its setting on a falling trend from the year 2012 onwards.
Moreover, the privatization program is now planned to be
implemented considerably more through 2015, with the
Government setting explicitly, in the MTFS 2012-2015, a
target of 50 bln in 2011-2015. If we assume that
privatization revenues exceeds 35 bln in 2011-2015 and
60 bln in 2011-2020, the Greek GG debt/GDP ratio is
expected fall below the 100% of GDP in 2021 and below
60% of GDP in 2030 (Diagram 1).
The implementation of the above substantial fiscal
adjustment in 2010-2011 was accompanied with a wide
array of far reaching structural reforms, which were
legislated and are well in the process of implementation
within the very short period of 12-months. The program of
far reaching structural reforms aims at the reversal of the
structural rigidities, inefficiencies and excesses of the
2000s, when high wage and employment growth, in
combination with low (or even negative) productivity
growth in the public sector and in excessively protected
activities, were the main contributors to the 2007-2009
fiscal derailment and to the gradual erosion of Greeces
international competitiveness. Thus, the fundamental
reform of the pension and health care systems and the
equally important reform of the labour and product
markets of the country, as well as the establishment of
better governance practices in local and central
government and in state controlled entities constitute a
virtual brake with the past. Although most of these
reforms are in the process of implementation and there
still are a multitude of challenges lying ahead until these
reforms will be fully functional, the progress that has been
achieved until today in this field should not be
underestimated. Moreover some key reforms such as the
reform of the pension system and the labour market are
near to completion, while structural reforms will continue
in the following years with the implementation of the 50
bln programme of privatizations and development of
public property in the period 2011-2015. This will imply a
substantial reduction of the Greek states involvement in
the economy and, in combination with the rationalization
of the domestic labour market, will contribute to the
attraction of FDI.
However, the above fiscal adjustment and structural
reform effort was negatively affected by the substantial
contraction of domestic economic activity, implying a -
6.5% fall of GDP in H2 2010 and a fall of -4.35% GDP in
2010 as a whole, with unemployment accelerating to
14.8% in December 2010 and to 15.9% in February 2011,
from 12.5% in 2010 as a whole. The deepening of the
recession in H2 2010, compared with a relatively mild
GDP fall in H1 2010, was mainly due to the following two
factors: First, following the spectacular 4-notches
downgrade of Greece by Moodys in June 2010, to non-
investment grade status, the country was exposed to the
whimsical predictions from experts from all around the
world of its imminent downfall to a state of bankruptcy or
even worse. This led to an unprecedented fall of domestic
consumer and business confidence, which implied a
dramatic -14.9% fall of the volume of retail sales in Q4
2010 (-20.4% fall in December 2010), from -5.3% in Q2
2010 and +5.7% in Q1 2010, and an equally dramatic fall
of business and housing investment. Moreover, the
extraordinarily negative international press coverage,
especially in presenting Greece as a country of unrest
(with its people reacting with violence to the austerity
measures), made Greece the only European country that
experienced a fall in its international tourism in 2010.
Diagram 1a. Fiscal Adjustment in Greece and
in other European Union countries 2010
United
Ireland Greece Spain Portugal Kingdom
0,0%
-5,0%
-10,0% -9,2% -10,1%-9,1%
-10,5% -11,1% -10,4%
-11,4%
-15,0% -14,3%
-15,4%
-20,0%
2009 2010
-25,0%
-30,0%
-32,4%
-35,0%
In fact the fiscal adjustment of 2010 and the substantial
progress recorded in the structural reform agenda, took
place in an environment of admirable social acceptance
and fundamental political stability.
Nevertheless, the endless search in the international
press for arguments to be fired against Greece implied
that a greater damage to the Greek economy could not in
reality be avoided. The apparent conclusion of
international analysts and commentators was that Greece
has done little of what is needed to get out from the crisis.
Fiscal adjustment presented in Diagram 1a above, the
pension system reform, the labour market reform, the
health care system reform, the public sector entities
reform, the local government reform, the tax system
reform do not seem to matter. The argument is that there
is more to be done. Of course, there is more to be done!
The existing prospects for the evolution of economic
activity in Greece in the following quarters and in
2011 as a whole are supportive of a positive thesis on
Greeces economic outlook:
First, exports of goods and services and
manufacturing orders from external markets have
registered a particularly strong performance in Q4
2010 and an even stronger performance in Q1 2011.
Exports of goods registered a 24% increase in real terms
in Q4 2010 and a 31.3% yoy increase in nominal terms in
Q1 2011. Moreover, in the tourist sector, tourist receipts
were up by 6.1% in January-February 2011 and advance
bookings and reports from source countries are becoming
stronger by the day, showing that 2011 is going to be a
year of satisfactory growth of external tourism in Greece.
On the other hand, imports of goods excluding fuels fell
by -16.9% in Q1 2011 (-25.1% in March). Overall, net
exports must have exerted a substantial positive effect on
GDP growth in Q1 2011 and the same is expected to
happen for the year 2011 as a whole. In fact the
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 3
European Commission (Spring 2011) projects this effect 2011 onwards by the scheduled intensification of the
to reach 5.0 pps in 2011. privatization endeavors of the Government and by the
implementation of investment projects in the context of
Diagram 2. Labour Cost Index the Community Support Framework (CSF), which are co-
financed by EU structural funds. During 2010 the
1,14
1,12
absorption of investment funds from the European Union
1,10 were very low (about 2.0 billion lower that the projected
1,08 level) which explains in part the big fall in investment and
1,06 in GDP in 2010. This shortfall can be rectified in 2011, a
1,04
1,02
year in which most of the growth effect of the 1.2 billion
1,00 of structural funds received in December 2010 will be felt.
0,98 Overall, the inflows of EU funds in 2011 may exceed
5.0 billion, from 2.0 billion in 2010. Moreover, in May
2011 the new investment incentives law became
Italy Greece Spain Euro area (17 countries) operational, a development which further supports the
prospects of investment consumption. Finally, overall
construction activity reached such low levels in Q1 2011
These impressive developments in Greek exports and
that further falls in following quarters may be constrained.
imports are further supported by the substantial
improvement of Greeces international competitiveness The above should have been enough in order to assume
due to the fall of wages in the public and the private that overall investment activity in 2011 would tend to be
sector and the drastic reform and rationalization of the stabilized. However, the European Commission (Spring
domestic labour market. In fact, the substantial fall in 2011) is projecting an even higher (-16.6%) fall in
employment and the surge in unemployment also imply a investment in 2011, following its sizable fall by -16.5% in
sizable positive effect on productivity. This repositioning 2010 -11.2%, in 2009, and -7.5% in 2008. This could only
of Greece in the international competitiveness front is happen if it was imposed on the Greek government by the
evident by the fall of domestic unit labour cost by -3.0% in Troika itself and it would have disastrous effects on the
2010 and by an expected additional fall of -3.0% in 2011 Greek economy. However, a more possible development
(see also Diagram 2). The Greek business firms and the would be that investment will be promoted aggressively
state and local government are now more able to manage starting from 2011, with the greatest possible effort
their labour force for higher productivity. applied for the effective implementation of the Community
Support Framework 2007-2013. On these grounds,
Second, the volume of retail sales have registered a investment could be brought to contribute positively to
much lower than expected fall of -12.2% yoy in GDP growth in the current and the following years,
January-February 2011, from the very high base of following its extraordinarily high negative contribution in
January-February 2010 where they had registered an 2009 and especially in 2010.
increase of 3.4% and compared with a fall -15% in Q4
2010. In fact, substantial base effects will imply that the Fourth, these encouraging developments in exports and
fall of the volume of retail sales in 2011 will evolve retail sales were also reflected on the substantial
following more or less the pattern shown in Table 2. improvement of Economic sentiment in the country,
which registered a recovery to 79.4 in February 2011 and
Table 2. The expected % increse of the volume of retail 78.8 in March 2011, from its abnormally low level in Q4
sales in the 4-quarters of 2011 2010 (December 2010: 73,7, May 2010: 70,2).
2009 2010 2011 Finally, the above favourable developments in Q1 2011
Q1 2011 -9,4% 5,7% -13,1% were verified by the economy itself, which registered a
positive q/q/ growth of 0.8% in this quarter, while the fall
Q2 2011 -13,3% -5,9% -3,5% of GDP yoy was also much milder at -4.8%, from -7.4% in
Q3 2011 -8,6% -11,1% 0,5% Q4 2010. This positive q/q GDP growth could have been
Q4 2011 -6,0% -15,0% 3,2% predicted as it reflects the above analyzed developments,
Year -9,4% -6,5% -3,3% concerning the double digit growth of exports, the
substantial fall in imports of goods and services, the lower
Sorce: EAD Alpha Bank Projections than expected fall of the volume of retail sales, and the
Analogous to the above is expected to be the evolution of substantial improvement in economic sentiment. However
the turnover of the main services sectors of the Greek the consensus projection from analysts around the world
economy. This scenario may be correct or near correct, for Greek GDP growth in Q1 2011 was for a fall in the
or even wrong. However, the European Commissions order of -1.0% q/q and an expected yoy fall of -6.6%!
prediction of a fall of private consumption by -6.4% in In fact, the European Commission and the IMF had
2011 (EC Spring 2011) compared with -4.5% in 2010 estimated correctly (February 2011) that Q4 2010 was the
seems utterly unfounded. In fact, the above scenario inflexion point of economic activity in the current Greek
indicates that the fall of private consumption will be less recession. This meant, however, that they were
than its fall in 2010. projecting a lower fall of GDP in Q1 2011 than its fall in
Q4 2010. The reality was better as the q/q falling trend of
Third, government controlled investment is expected
GDP was terminated in Q1 2011. This development was
to be stronger in the following quarters of 2011, from its
in any case an important one for Greeces economic
very low level in 2010 and in Q1 2011. In particular,
recovery and fiscal adjustment. It is reasonable to
government controlled investment may be boosted from

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 4
assume that the performance of the economy in the and the fall in imports of goods and services by -8.4%,
following quarters of 2011 will improve on a yearly basis implying a positive effect on GDP growth by 5.0 pps, GDP
(as base effects become more prominent), especially in will still fall in 2011 by -3.5%. For this to happen, the
case tourist activity in the current year proves to be much European Commission projects a new dramatic fall in
stronger from its low level in 2010. Thus, GDP fall in 2011 private consumption in 2011 of -6.4% (-4.5% in 2010) and
as a whole may not exceed the -2.5%, with a positive yoy in investment of -16.5% (-16.5% in 2010). This will also
growth in Q4 2011. happen in a period in which one of the main objectives of
the Troika is to improve competitiveness in the domestic
Overall, the ongoing domestic growth-friendly structural
economy of Greece and also in a period in which Greece
reforms and fiscal adjustment should have been
expected to improve consumer and business sentiment has to absorb more than 17 billion from the EU
in the following quarters and to swiftly move the structural funds to co-finance investment projects in
economy back to a satisfactory positive growth path. Greece. Finally, on top of the above, which imply a fall of
domestic demand by -7.6%, the European Commission
However, the move to a better economic environment also projects a fall in inventories, which is expected to
has been hampered by the catalytic interventions of produce an additional 0.5 pps GDP fall.
rating agencies and the European Commission with its
Spring 2011 Forecasts, which contributed to the Additional credibility damage to the Greek economy was
unprecedented widening of the CDS and spreads of GG exerted by the sudden change at end 2010 of the GDP
debt. More specifically: measurement methodology by the new independent
statistical authority in Greece (ELL STAT). The new
Despite the above encouraging developments in the methodology appears to exclude, at a higher percentage
Greek economy, the rating agencies Moodys and the than the old one, the plethora of non-recorded economic
S&Ps proceeded in March 2011 and then again in May transactions from measured official GDP. On the other
2011 with new multiple downgrades of Greece, which hand, by including 16 public sector entities into the
produced a new flood of renewed publications general government implied a substantial increase in their
internationally and in the domestic press predicting the contribution to GDP up until 2009, inflating in particular
restructuring of Greek debt. This implied also a new fall
real GDP in Q4 2009, while their effect on GDP in 2010
back to an extraordinarily low consumer and
was substantially reduced as most of these entities had
business confidence in Greece, which, if maintained,
entered a period of drastic restructuring. This later
could spur new falls of domestic private consumption and change alone implied a higher fall of GDP in 2010 as a
investment, which could potentially offset the substantial whole (-4.35%, instead 3.98%) and in particular a higher
positive effects on GDP growth from net exports and an fall of GDP in Q4 2010 (-7.39%, instead -5.92%). It is
expected stabilization of state controlled investment. important to notice that with the new measurement real
Diagram 3. 10y Government CDS Spreads GDP in 2010 ( 171.9 bln) is higher than the one that was
1400 estimated when it was assumed that the fall of GDP in
Greece 2010 would be -4.0% ( 171.87 bln). Nevertheless, the
1200
Germany
headline effect when the Q4 GDP growth was announced
Portugal
1000 Spain appeared as if there was a dramatic deterioration. And all
Ireland these are happening in a country in which everyone
800
knows that at least 35% of economic transactions are not
600 recorded in the official statistics.
400 The markets remain in general negative for Euro-
peripheral countries debt and especially for the Greek
200
debt. This is mainly due to the ongoing debate about the
0
Eurozone permanent crisis resolution mechanism, the
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 European Stability Mechanism (ESM), which was
established on 11 March 2010 in order to provide the
Diagram 4: 10yr Bond Spreads vs. Germany
needed conditional financial assistance to member
countries facing liquidity problems. This mechanism
1400
includes a provision according to which, in the extreme
1200
Greece
Portugal
case that the debt of an applicant country is judged to be
Spain unsustainable, the country should be obliged to facilitate
an orderly (voluntary) restructuring of its debt with the
1000
Italy
Ireland
800 involvement of its private bond holders. This amounted to
600
a prospect of a possible obligation of Greece to negotiate
with its private borrowers a restructuring of its debt.
400
Although this prospect was substantially remote, as it
200
would be triggered if Greeces debt was considered
unsustainable in the middle of 2013, it looms in the
0
2008 2009 2010 2011
background, affecting negatively Greek and other
peripheral countries spreads and CDSs.
Moreover, the European Commission shed new oil on
the above conflagration by predicting in spring 2011 In combination all of the above factors have produced an
that despite the projected substantial increase in upward surge in Greeces bonds and CDSs spreads, as
Greeces exports of goods and services by 10.7% in 2011 shown in the diagrams 3&4, and have cast considerable

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 5
doubts as to whether Greece will indeed be able to re-
enter the bonds markets in 2012 and 2013 in order to
secure the additional funds needed (after the end of
official financing from the Eurozone and the IMF) in order
to cover its borrowing needs. The main issues arising
from this development are as follows: Assuming that
Greece will cover its borrowing needs in 2011 ( 55 bln)
from the Financial Mechanism I ( 40 bln) and the market
(selling additional treasury bills of 6.0 bln), Greece will
need to make certain that additional financing of about
30 bln in 2012 will be secured from the Eurozone-IMF
financial mechanism (or the EFSF).
Moreover, if in 2013 Greece is still not able to borrow
enough funds from the bond markets, it will need
additional official financing. Overall an additional bridge
financing of 60 billion in 2012-2013 would be enough to
enable Greece to re-enter in full the bonds markets from
2012 or 2013 and cover all its financing needs through
borrowing an amount of 45 bln yearly, compared with its
borrowing of 78 bln in 2009. This will happen in a
situation in which in 2014 Greece will have a GG deficit of
less than 2.6% of GDP, a GG Debt of less than 144% of
GDP, a nominal GDP growing at yearly rate of 4.0% or
more, and real effective exchange rate in terms of ULC,
which will have been devalued by at least 20% compared
with its level in 2009.
The Troikas conditions for the continuation of the
required fiscal adjustment and structural reform by
Greece in 2011-2015 are extraordinary restrictive:
In the above unfavorable environment, the Greek
government is now determined to implement as planned
the 2011 Budget, aiming at reducing the GG deficit to less
than 7.5% of GDP, from 10.5% of GDP in 2010. This will
require a reduction of the GG primary deficit to 0.6% of
GDP in 2011, from 4.7% in 2010 and 10.1% in 2009.
Moreover, the Government has already published the
general outlines of The medium-term budget strategy
2012-2015 required by the November 2010 and
February 2011 MOU, which specify the medium-term
fiscal and structural measures to ensure meeting the
annual fiscal targets of the Adjustment Programme for
2012-15. These medium-term targets require a further fall
of the GG Deficit from 17.0 billion in 2011, to below
14.1 bln (6.1% of GDP) in 2012, to 12.0 bln (5.0% of
GDP) in 2013, 7.1 billion (2.6% of GDP) in 2014 and
to below the 2.1 billion (1.3% of GDP) in 2015. This
strategy has been finalized in co-operation with the Troika
in its May 2011 review and will it be approved by the
Greek Parliament until the end of May 2011.
Fiscal Adjustment in 2011: The above data indicate that
fiscal adjustment in 2011 requires a fall in the Greek GG
deficit by 3.0 pps of GDP, or a fall of the GG primary
deficit by 4.1 pps of GDP. In order to secure the
achievement of this target the Greek Government has
specified in the Budget 2011 revenue increasing
measures amounting to 3.5% of GDP ( 7.83 bln) and
expenditure reducing measures amounting to 2.9% of
GDP ( 6.5 bln), implying a total adjustment of 6.4 pps of
GDP ( 14.33 bln). However, the implementation of the
Budget 2011 in the period January- April 2011 implied a
fall of the net current revenues by -9.2%, compared with a
requirement for an 8,5% increase for the year as a whole.
On the other hand, net current primary expenditure was
down by -0.9% in the first four months of the year,
compared with a projected increase of 1.9%, and interest
payments registered an increase 14.3% yoy, compared
with a projected increase of 20.4% for the year as a
whole. Overall, the execution of the states budget in
January April 2011 appears to be short of the target set
in the budget 2011, but this does not imply that the
required reduction of the GG deficit to less than 7.5% of
GDP in 2011 will not be achieved. More specifically:
On the revenues side the shortfall in the first four months
of the year was mainly due to the fact that new revenue
increasing measures for 2011 amounting to more than
2.5% of GDP will apply from May 2011 onwards. On the
other hand, net current revenues in January-April 2011
were hit by the much lower (by about 450 million)
withholding of personal income tax in this period due to
the substantially reduced incomes of wage earners from
May 2010, and also by a lump sum payment in April 2011
of 600 million of tax refunds for the settlement of such
states obligations carried through from previous years.
Assuming that most of the revenue increasing measures
assigned for 2011 will in fact be implemented, net current
revenues for the year as a whole may still register an
increase of 3.5%, implying a shortfall of 2.5 billion
compared with the budgeted level.
On the other hand, on the expenditure side, net current
primary expenditure in January April 2011 is already
performing better than budgeted and the same applies for
interest payments. Moreover, additional cuts in primary
expenditure are set to be applied in the remainder of the
year, including: a) the application the unified structure of
wages in the public sector, securing substantial cuts on
unjustifiably high wages and a generally lower wage bill,
b) the drastic reform of the system of social benefits,
which will now be provided only to those that really need
them, c) the reduction of employment in the public sector,
where employment has already been cut by 83 thousand
in the last year and d) the on going rationalization and
reduction of health care expenditure, comprising a cut of
pharmaceutical expenditure by 1.4 billion in 2011 and
the cut of the cost of hospital provisions by 0.7 bln in
2011. Overall, it is now estimated that current primary
expenditure may come to register a fall of about 1.5
billion in 2011 and interest payments may also be lower
by an estimated 700 million. Another 500 million may
be saved due to a lower deficit in the public investment
budget. Overall, the states budget deficit is now
expected to be lower by more than 2.0 billion from the
projected level.
Furthermore, a GG deficit reduction is expected from
the following structural reform efforts:
a) The drastic reorganization of the 16 public sector
entities, which were included into the general government
from November 2010. This reorganization is projected to
imply a substantial reduction of the deficit of these entities
amounting to more than 800 million in 2011 as a whole.
In fact, in Q1 2011 this deficit was lower by 278 million
compared to its level in Q1 2010. This was achieved
despite the fact that total revenues before subsidies of
these entities were down by -5.4% in Q1 2011, due to
their continuous work stoppages in a series of
protestations of their personnel, trying to prevent the
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 6
drastic reform of labour relations in these entities in the billion and 25% revenues boosting measures amounting
process of their restructuring. Nevertheless, the ( 9.0 billion). Moreover, these measures will address the
restructuring including sizable cuts in wages and interest payments increase expected to reach 8.5 bln
operating costs was legislated and implemented as and the rest the primary surplus increase by 14.5 bln.
planned. The number of employees in these entities was The main categories of measures that are going to be
reduced by 3.199 employees in Q1 2011 and it is applied in order to bring about the required fiscal
expected to be reduced further in the remainder of the adjustment of 26 bln are presented in Table 5.
year. Normal operation has now been established in Table 4. The Medium-Term Fiscal Strategy 2012-2015
these entities and for the year as a whole it is also in bn 2010 2011 2012 2013 2014 2015
expected a substantial increase in their revenues due to Primary Expenditures (General Gov.)
Interest
104,7
13,4
98,4
14,4
98,5
15,5
96,4
17,1
92,0
19,9
89,3
22,5
improved collection practices and an increase in tickets Total Expenditures (General Gov.) 118,1 112,7 113,9 113,4 111,9 111,9

and other prices of services offered. Total Revenue (General Gov.) 93,1 95,6 98,0 102,1 105,5 109,3
General Government Deficit -25,0 -17,2 -15,9 -11,4 -6,4 -2,5

b) The reorganization of local government entities, with a General Government Primary Deficit
Nomian GDP (in bn)
-11,6
230,1
-2,8
225,9
-0,5
230,7
5,7
237,3
13,5
245,4
20,0
254,2
budgeted expenditure saving of 500 million in 2011. Nominal GDP (%) -2,4% -1,8% 2,1% 2,9% 3,4% 3,6%

This program is in the process of its application and the Table 4.1. General Government Deficit, as a % of GDP
Total Revenue (General Gov.), as a % of GDP 40,5% 42,3% 42,5% 43,0% 43,0% 43,0%
benefits are projected to be even higher than projected. Total Expenditures (Gen. Gov.), as a % of GDP 51,3% 49,9% 49,4% 47,8% 45,6% 44,0%
Primary Expenditures (Gen.Gov.), as a % of GDP 45,5% 43,5% 42,7% 40,6% 37,5% 35,1%
c) Concerning Social Securities Funds, the results of General Government Deficit, as a % of GDP -7,6% -6,9% -4,8% -2,6% -1,0%

efforts to reduce their deficits are mixed. The substantial Gen. Gov. Primary Deficit, as a % of GDP
Interest, as a % of GDP
-5,0%
5,8%
-1,2%
6,4%
-0,2%
6,7%
2,4%
7,2%
5,5%
8,1%
7,9%
8,9%
fall in pension and health care expenditure of these funds Table 4.2. General Government Debt
due to measures already applied, tend to be supplanted 2010 2011 2012 2013 2014 2015
General Government Deficit -25,4 -17,1 -15,8 -11,3 -6,4 -2,5
by the shortfall of their revenues. Contribution evasion Maturing Government Guarantees 5,3 4,5 2,0 1,5
has been increasing in 2010 and in 2011, notwithstanding Privatisations and State Asset Mngment
(2011-2015: 50 bn) 0,0 -3,0 -12,0 -10,0 -12,0 -13,0
the effect of the recession. General Government Debt (in bn) 328,6 347,2 353,0 354,4 348,7 338,3
General Government Debt, as a % of GDP 142,8% 153,7% 153,1% 149,3% 142,1% 133,1%
The above and other developments will be reinforced
during the year with the purpose to secure the budgeted Table 5. The Fiscal Consolidation Effort for 2012-2015
reduction of the GG deficit bellow the 7.5% of GDP. % of GDP Bln
1. Streamlining the Public sector Wage Bill 0,9% 2,0
The Medium Term Fiscal Strategy (MTFS) 2012- 2. Reduction in Operational Expenses 1,1% 2,5
2015, is aiming at a GG deficit reduction to 2.6% in 3. Closure/Merger of Public Entities 0,5% 1,2
2014 and to 1.0% in 2015, as summarized in Table 4. 4. Restructuring of State-owned Enterprises 1,0% 2,3
5. Reduction in Defence Spending 0,5% 1,2
This, in combination with revenues from privatizations
6. Streamlining Health Expenditures 0,5% 1,2
and the better management of public property reaching 7. Streamlining of Pharmaceutical Expenditures 0,7% 1,5
50 bln in 2011-2015, implies a stabilization of GG Reduction in Social Security Fund expenditures and
debt at the level of 153.7% of GDP in 2011 and to a 8. streamlining of other social spending 1,1% 2,5
gradual fall of this debt to 133.1% of GDP in 2015 and 9. Enhancing Tax Compliance 1,5% 3,5
bellow the 100% of GDP in 2021. This involves a rise 10. Reduction in Tax Exemptions 0,9% 2,0
Increase in Social Security Fund revenues and tackling
of the GG revenue to 43% of GDP in 2015, from 11. social insurance contribution evasion 1,5% 3,5
40.5% of GDP in 2010, while the fall of the GG primary 12. Increase in Local Government Revenues 0,3% 0,6
expenditure is substantial reaching to 35.1% of GDP in 13. Other Expenditures 0,9% 2,0
2015, from the very high 45.5% of GDP in 2010. These Total 11,4% 26,0
developments will lead to a GG primary surplus of
More specifically, the main policies that are going to be
7.9% of GDP in 2015, which constitutes an adjustment
applied by sector in order to achieve the above fiscal
of 13 pps of GDP from 2010. This big required adjustment outcome are as follows;
adjustment is mainly due to the excessively pessimistic
assumptions concerning nominal GDP growth in 2011- The public sector wage bill will be cut by another 2.0
2015, which averages 2.0% despite the assumed bln, in addition to cuts of about 3.3 bln implemented in
substantial activity in the field of privatizations. 2010. Therefore, the compensation of the general
government employees will fall to 10.9% of GDP in the
In order to address the fiscal risks in 2011, the following years, from 11.8% of GDP in 2010, 13% of GDP
government has identified additional policy measures in 2009 and 10.8% of GDP in 2003. The Eurozone
amounting to 3.0 bln initially and then, in the wake of average was 10.6% of GDP in 2010 and it is set to fall to
the revelation of the unsatisfactory implementation of the 10.3% of GDP in 2011. The main policy measures that
Budget 2011 in the first four months of 2011, to 6.0 bln. are going to be applied in this sector are the following: a)
This gives new credibility to the argument that the 7.5% The substantial reduction of employment in the general
GG target for 2011 will be achieved even under the worse government sector through the application of the rule 1:5
possible economic conditions. If the recession recedes in for hiring new employees. In fact, employment in the
2011 then the fall in the GG deficit will be even higher. public sector is expected to fall at the end of 2013 by 200
Then, in order to address the fiscal consolidation thousand compared with 2010. For this, the government
objective for the period 2012-2015, the government has passed through parliament the increase in the working
identified additional fiscal adjustment measures hours in the public sector to 40 hours a week, from 37.5
amounting to 23.0 bln. This by 75% will imply additional hours a week and the reduction in overtime pay. b) The
substantial cuts of GG expenditure, amounting to 14.0 reduction by at least 10% of contractors hired by the
public sector, as well as of the number of employees in

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 7
permanent posts and positions of responsibility. c) The
application of the unified wage structure in the public
sector, cutting excessively high wages and benefits, with
an expected additional saving of 180 bln within 2011.
Overall there is great scope for additional savings in this
sector, which should be targeted to exceed the 4.0 bln
for the period 2011-2015, instead of the projected 2.0
billion in the MTFS.
Reduction in operational expenses of the public sector
by an additional 2.5 bln, or by 1.1% of GD. Intermediate
consumption of the general government reached 7.3% of
GDP in 2009, and fell to 5.8% of GDP in 2010. Now, it is
expected to fall further to 4.7% of GDP in 2011 and 2012.
This will be achieved by a rationalization of government
procurement processes, with the use of electronic
platforms, and the drastic reduction of excessive
operational expenses of all public sector services.
Moreover, various subsidies provided by the public sector
for newspaper distribution and the cost of managing the
public investment budget will be cut substantially or
abolished. Therefore, this item can be stabilized at
around 5.0% of GDP, securing also the appropriate
functioning of the relevant public sector services.
Closure or Merger of Public Entities aiming at a
reduction of the relevant state expenditures by 1.2
billion in the following years: There is ample room for
savings to be achieved in this sector and at the same
time to increase substantially the operational efficiency of
these entities. The government intends to proceed with a
re-evaluation of the mandate and expenditures of all
public sector entities that receive grants from the state.
The new Educational Map of the country is used to
identify the primary and secondary education schools and
institutes that can merge or close in 2011-2012.
Moreover, tertiary education schools and institutions may
also be restructured in the period 2011-2015.
Government and ministries department and public entities
abroad will be examined as to whether they can merge or
close. Of particular importance is the programmed merger
or closure of tax and custom offices, which must only aim
to the substantial increase in their operational efficiency.
A 400 million saving is expected from the reorganization
of tax authorities, while much better results in capturing
tax evasion are also expected.
Restructuring of state owned entities, with expected
saving (expenditure cutting and revenue increasing) of
2.3 bln (1.0% of GDP): We have already referred to the
performance of 16 public entities in Q1 2011, where there
was a substantial reduction of their deficit by 43.2%. The
GG expenditure saving from this area will reach 800
million in 2011 and with the full implementation of the
restructuring plans of OSE (the rail transport organization)
and of OASA (the Athens city transportations company)
and with increasing focus on actions (increasing tickets
and other prices and substantially improving collection
practices) to substantially increase revenues from these
entities. Especially OASA has the monopoly of the whole
Athens city transportations and its ability to increase
revenue is really substantial. Moreover, the same applies
to Athens periphery railway, which needs to develop
properly. On the other hand, new restructuring plans are
applied to the other state owned entities, including public
TV and the Hellenic Aerospace Industry (EAV), which is
in line to be privatized. Finally, substantial savings are
expected through the reorganization, rationalization of
management and a substantial increase in productivity of
defense and other industries. Overall, revenue increasing
and expenditure cutting measures in these activities may
bring about savings exceeding the 3.5 billion.
Reduction of Defense spending by an additional 1.2
bln in 2011-2015: This is again an area where
substantial savings can be achieved. Defense
expenditure of the current budget reached 4.98 bln in
2010, from 6.3 bln in 2009. In addition, expenditure for
defense equipment reached 1.5 bln in 2010, from
2.17 bln in 2009. Overall, defense spending absorbed
again 2.82% of Greek GDP in 2010, while the average
defense spending in the European Union does not
exceed the 1.0%. The cut in defense spending until now
comprised flat cuts in wages and benefits of personnel,
while there is also a great opportunity for savings from
better management of procurement and expenditure in
this sector with the purpose of substantially increasing
productivity and value for money. In particular, defense
procurement spending and operational expenses may be
greatly reduced, while there also is a great need to
reduce or better utilize and exploit army camps.
Streamlining health expenditures, aiming at an
additional 1.2 bln cut of GG health dare expenditure:
This expenditure was contained to the level 4.1% of GDP
in 2010 (taking into account the annual central
government handouts to the health care departments of
the social security funds), from 4.3% of GDP in 2008.
This GG health care expenditure can be reduced further
through the rationalization of operations of hospital
implying a substantial reduction of the relevant cost per
patient per case. Also, the new Health Map of Greece will
enable the Ministry of Health to identify hospitals that can
be merged or closed. Moreover, primary health care has
been introduced and reinforced in order to reduce the
current congestion on most hospital units. Finally, the
new centralized procurement system is expected to
produce substantial savings in health care cost. However,
the greatest opportunity for the rationalization of the
working of the health care system in Greece arises from
the prospect of the introduction of a radically new pricing
model of public health care services. This new policy
represents the great chance to increase Public Health
Care savings by more than 2.5 bln annually and at the
same time to improve greatly health care services offered
by the public sector in Greece.
Streamlining of pharmaceutical expenditure aiming at an
additional saving of 1.5 bln of GG expenditure: Again in
this area there is substantial effort to reduce
oversubscription and excessive public expenditure on
drags, through the rationalization of the public hospital
procurement practices, the full implementation of the e-
prescription system, the rationalization of social security
funds practices on pharmaceutical spending (especially
the rationalization of spending for the procurement of
drags from pharmacies) and the expansion of the use of
generic drugs. From all these activities there is great
scope for achieving GG expenditure savings in
combination with the great benefits arising from the
rational functioning of the system. However, the single
most important measure that is needed for a substantial
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 8
improvement of the functioning of the system is the
drastic increase of the payment for the drugs by the
patients themselves. With this measure the savings that
can be achieved would surpass by far the projected
savings from this sector of 1.5 bln.
Reduction of Social Security Funds (SSFs) expenditures
and streamlining of other social spending: A saving of
2.5 bln has been projected from this sector. In any case,
this is an area of great importance. Social benefits other
than social transfers in kind reached the 21.2% of GDP in
2011 and this compares with 17.5% of GDP in the EU-17.
Excluding payments for pensions, these non-pension
social benefits still exceed the 9.0% of GDP ( 21.0 bln).
First, the government will proceed in the following months
with the fundamental reform of the Supplementary Social
Security Funds in order to safeguard their long term
sustainability. This will make even stronger the already
substantially improved long term sustainability of the
Greek Social Security System. It will also produce
substantial additional cuts in expenditures in the following
years. Secondly, the government intends to introduce a
means testing approach, with the establishment of
income and wealth thresholds, for determining the
beneficiaries of welfare benefits. For this purpose a single
organization will be established which will be responsible
for the provision of social transfers, lowering also
operational expenses to the minimum possible. This new
system will also enable the government to examine the
provision of targeted welfare benefits to the most
vulnerable members of the society. Overall the savings
that can be made in this sector, mainly through the much
needed rationalization of the system used, can again
exceed the 2.5 bln. Moreover, a substantial increase of
the revenues of the system from social security
contributions could also be envisaged. In fact, actual GG
social contributions received fell to 10.7% of GDP in
2010, from 11.7% of GDP in 2003. However, in the
current period social contribution evasion has reached
unprecedented levels and in combination with the effect
of the recession, have been causing substantial revenue
holes in the system. Therefore, the European
Commission is expecting a further fall of the revenues
from these contributions to 10% of GDP in 2011. It is
obvious that the relevant SSF services must undertake
drastic measures in order to bring about a much needed
substantial recovery of social security revenues both in
2011 and in the following years. If, however, the
government succeeds to increase the level of GG SS
contributions to 11.7% of GDP in 2015, then the
additional revenues from this source will exceed 2.5 bln
and the total savings from SSF deficits may exceed the
5.0 bln, from the 3.5 bln targeted.
Enhancing tax compliance: This should have been one
of the main pillars of fiscal adjustment in Greece. This is
also one of the sectors in which the government has not
any success stories to tell explaining its performance until
today. The government has now published a new
operational plan for tackling tax evasion. It plans to
increase the quantity and effectiveness of targeted audits
in small and big businesses and in particular targeted
audits concerning VAT declarations. Also, the
government plans to enhance the effectiveness of
auditing of medium and large enterprises through the
utilization of new information systems and methods. Tax
offences by individuals with large wealth assets will be
clearly identified and the government must make a more
determined and effective effort in order to collect the
arrears and fines owed to the State. On the wake of
substantial transfers of financial wealth by many wealthy
individuals abroad in recent months from incomes
generated in Greece, the government must require to
learn weather this has been properly taxed. Also, there is
need for more effective taxation of real estate assets from
the central or the local governments. Finally, now is the
time to make a more efficient effort to tackle smuggling
and the contraband (untaxed) trade. The governments
projection for additional revenues of the order of 3.5 bln
in 2015, compared with the depressed tax revenues in
2010, is very conservative and does not actually
constitute a real brake through with the past in this very
critical area. This can be made more obvious from the
following: a) Revenues from current taxes on income and
wealth fell in Greece to the 7.6% of GDP in 2010, from
8.6% of GDP in 2001 and 8.5% of GDP in 2005. This
compares with 14.7% in Italy, 15.6% in Belgium, 15.9% in
Finland, 10.5% in France, 10.3% in Germany, 10.7% in
Ireland, 12.8% in EU-15, 12.3% in EU-27 and 11.4% in
the USA. If we assume that the fight against tax evasion
in Greece will be of minor success and succeed only to
rise the 7.6% of 2010 to a more acceptable 8.6% of GDP
in 2015, then additional revenues from only this direct
taxation in 2015 will reach the 2.6 bln. If, however, as is
appropriate this percentage is increased to 9.6% (still 5-
pps of GDP bellow Italy) then the additional revenue from
the direct income tax may exceed the 5.0 bln.
Table 6. Current taxes on incom and wealth
Falling tax evasion Fixed tax evasion
Direct Direct
Nominal taxes % of Direct tax taxes % of Direct tax Additional
GDP GDP revenues GDP revenues revenues
2010 230.050 7,60% 17.484 7,60% 17.484 0
2011 225.900 7,80% 17.620 7,60% 17.168 452
2012 230.700 8,10% 18.687 7,60% 17.533 1.154
2013 237.300 8,80% 20.882 7,60% 18.035 2.848
2014 245.400 9,10% 22.331 7,60% 18.650 3.681
2015 254.200 9,60% 24.403 7,60% 19.319 5.084
Source: European Commission, Spring 2011, EAD Alpha Bank estimates
b) Revenue from indirect taxes will also increase faster
than nominal GDP with the recovery of the economy,
especially from 2013 onwards, because of the much
higher rates of VAT and the excise taxes on oil and other
products. Therefore, revenues from this source will also
be much higher in 2013-2015 than is currently projected.
c) Revenue from collection of overdue and verified tax
liabilities amounting more than 45 billion. This also
must exceed current collections of taxes by a significant
amount. Overall, enhancing tax compliance will eventually
bring about significant additional revenues to the Greek
state exceeding the 12 billion and this must actually be
the target of the fiscal adjustment program for 2015.
Reduction of tax exemptions is also a much needed
measure which may have effects in increasing tax
revenues already from 2011: On a yearly basis,
additional revenue from this source is expected to exceed
2.0 bln. The main change of policy will be that a tax
exception will be awarded in the future only on the basis of
social and economic criteria.
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 9
Reduction in social insurance contribution evasion:
The target is to increase revenues by 3.5 billion
until 2015, by drastically reducing the share of
uninsured labor to 12% (in line with the EU average)
from todays 26%. The government plans a joint
collection mechanism for tax and social insurance
systems. Verified overdue social insurance contributions
by businesses to the state exceed today the 11 billion.
Finally, the government plans to facilitate the
substantial increase in Local Government revenue
from their own resources: This is source o GG revenue
untapped in Greece until today. Local can increase
revenue from fees, tolls, rights, pricing of services offered
and a multitude of other revenue rising sources. The new
organizational structure of well organized and self
sufficient local government organizations will be used to
contribute in this direction. Therefore, this new local
administration is able to contribute to a reduction of the
GG deficit by more than 1.5 billion in 2015, compared
with the 2011, while at the same time improving
substantially local entities governance.
Overall the Greek government has already undertaken
substantial measures in order to reduce direct tax evasion
and increase the tax base of the country and in particular
real property taxes. The apparent assumptions of the
Troika, according to which the percentage of direct taxes
to GDP will be even lower in 2014 than its very low level
of 2010, are misdirected. The same applies for the
Troikas projections that revenue from social contributions
will fall to 11.79% of GDP in 2014, from 13.1% of GDP in
2009. The Government has intensified its efforts to
reduce social security contributions evasion (with verified
overdue social security contributions of businesses
exceeding the 11 bln by the end of 2010), while with the
new pension system the pensions provided by the
pension funds in the future will be determined manly by
the cumulated value of these contributions. Therefore,
despite the substantial difficulty that the government is
facing in the current recession in its effort to increase
revenue from this source, it is expected that the system
will improve gradually in the following years implying an
increase of the ratio of revenues from social contributions
to GDP in 2015 above the 13% of GDP.
STRUCTURAL REFORM: The Troika endorses the
progress achieved in the field of structural reforms
in Greece in 2010-2011 and demands an even more
decisive implementation of the still existing reform
programmes, including programmes of
privatizations and public property development
valued at more than 50 bln. However, they do not
seem to count any positive effects of these
reforms and programmes on facilitating fixed
investment, tax revenue growth and the timely
recovery of the economy in 2012-2015. According
to their projections, the economy will grow until
2015 much below potential with dire consequences
for the needed fiscal adjustment.
Nevertheless, the fundamental reform of the pension
system and the labour and product markets, the
establishment of better governance practices in local and
central government and in state controlled entities and
the 50 bln programme of privatizations and
development of public property in the period 2011-2015
( 15 bln in the period 2011-2013), constitute the main
thrust of the structural reform effort and are expected to
facilitate the recovery from 2012 and boost GDP
growth from 2013 onwards. This privatization effort and
the effort to utilize public property in Greece constitute the
second part of the Medium Term Fiscal Strategy 2012-
2015 and its implementation will be facilitated by the new
organizational and institutional structure of the public
sector and the economy as a whole.
RECENT GDP DEVELOPMENTS: The fall of real GDP in
2010 (a period of unprecedented turmoil and uncertainty
in the Greek economy) was -4.35%. This is a steeper fall
than our own projection for a -3.8% fall of GDP in 2010
and it is even higher than the projections of the Troika for
a -4.0% recession. On the other hand, it is lower than the
consensus of international economists for a -5.5% fall of
Greek GDP in 2010. Moreover, this -4.35% GDP fall in
2010 is a preliminary estimate and it could be revised
substantially. As it is today, this GDP fall is mainly the
result of an estimated fall of imports of goods and
services by a mere -4.8% in a year in which domestic
demand has fallen by -6.1%. More specifically, according
to the existing data, the drop of GDP in 2010 was mainly
due to the following:
Fixed investment registered a substantial fall in 2010 by
an estimated -16.5% yoy, following its fall by -11.2% in
2009 and by -7.5% in 2008. This fall was much higher
than our own projections, as well as the June 2010
projections of the Ministry of Finance (MoF) and of the
European Commission (EC) for a fall of fixed investment
in 2010 by -7.3%. This development was mainly the result
of government delays in implementing: a) the Public
Investment Budget (PIB), b) investment projects in the
field of Public Private Partnerships (PPP), c) approved
investment projects under the previous investment
incentives law, which expired in January 2010, as well as
a deeper recession.
Government consumption fell by -6.5% (lower than
expected), following its surge by 10.3% in 2009.
Private consumption fell sharply by -4.5% in 2010,
following its -2.2% fall in 2009. This development was
mainly due: a) to the substantial increase of VAT rates
and fuel and other excise tax hikes, which were applied in
April 2010 and in July 2010 and b) to the collapse of
consumer confidence, due to the unprecedented
uncertainty concerning the future of the Greek economy,
especially in H2 2010, c) to the fall of disposable income
in 2010 by an estimated -6.2% in real terms. This fall in
disposable income was much lower than expected due to
the failure to collect planned tax revenues on income and
wealth and social securities contributions. With
consumption falling by -4.5% in 2010 as a whole, the
gross saving rate has fallen only slightly to 17.7% in
2010, from 19.2% in 2009 and 16.4% in 2008.
Exports of goods and services registered a positive
3.8% increase in 2010, from a -20.1% fall in 2009. In fact,
export of goods surged by 35% in value terms in Q4
2010, and by 31.5% in Q1 2011, showing that their recent
dynamism is gaining momentum in 2011 as well. On the
other hand, ELLSTAT has recently estimated that the fall
in imports of goods and services for 2010 as a whole was
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 10
a mere -4.8%, while in the nine months to September the basic metals industry (2010: 11.9%, Q1 2011
ELLSTAT was reporting a fall by -10.5%. Until September 13,3%), the construction of metal products (2010:
2010 the percentage fall in imports was almost double the 2.5%, Q1 2011: 1.8%), the machinery and equipment
corresponding fall of domestic demand. However, for the industry (Q1 2011: 16.2%) tobacco industry (Q1 2011:
year 2010 as a whole the percentage fall in imports is 8.9%) and petroleum products industry (2010: 5.7%,
less than the corresponding fall in domestic demand. Q1 2011: -15,2%). Also, the very important for Greece
food industry (with a weighting in the manufacturing
Finally, nominal GDP growth was also negative, -1.7% in
industry index of: 18.23%) registered a slightly negative
2010, with the rate of increase of the GDP deflator not
growth of -0.2% in Q1 2011, compared with its minor fall
exceeding 2.6%, compared with an average CPI Inflation
of -3.1% in Q1 2010.
of 4.7%. These developments in GDP and in its
components in 2010 are explained by the following Diagram 5. Manufacturing Production
developments in important sectors of the Greek economy, 15%
as well as developments in the economic climate in the
10% 7%
country and in indicators of domestic demand growth.
5% 4%
DEVELOPMENTS IN THE MAIN SECTORS: The performance
of the tourist sector in 2010 has been unfavourably 0% 0%
affected by protest demonstrations that took place in
Athens in H1 and in Q4 2010, as well as by major -5% -3%
disruptions in overall economic activity caused by the -6%
-10%
track drivers strike in Q3 2010. In fact, minor incidents of Index
6m Moving Avg
social unrest were exploited by the world media to the -15% -10%
highest degree possible, with substantial negative effects
on Greek tourism and on the Greek economy in general, -20% -13%
especially in May and July 2010. Therefore, arrivals of 2004 2005 2006 2007 2008 2009 2010 2011
foreign tourists registered a minor increase by 0.6% in
2010, reaching 15.0 million. However, revenues from On the other hand, the fast falling trend of production of
tourism were -7.6% lower in 2010, from their very low the textiles, clothing and footwear sectors continued
level in 2009. On the other hand, arrivals of foreign unabated in 2010. Overall, the index of business
tourists to the Greek airports in January - April 2011 were expectations in Greek industry had improved substantially
up 5.4% yoy, with arrivals in April reaching up by 24.5%. to 80.6 in February 2011, from 71.3 in December 2010,
Revenue from foreign tourism was also up by 6.1% in bur it fell again slightly to 78.5 in April 2011. The relevant
January-February 2011. PMI index had been fluctuating around 43 until February
2011, but it improved to 45.4 in March 2011 and to 46.8 in
Greeces net merchant shipping receipts were April 2011, showing again a substantial deceleration in
substantially up by 13.8% yoy in 2010, reversing some of the falling trend of the manufacturing production in recent
their fall by -29.4% in 2009. However, outflows from the months, mainly due to the dynamic increase in exports
same source were also 15.3% higher in the same period. and exports orders.
Overall the net surplus revenue from shipping was higher
by 12.1% in 2010 compared with its fall by -34.4% in Diagram 6. Economic sentiment, business
2009, when these net revenues fell to 6.48 billion, from expectations and consumer confidence indicators
their record level of 9.9 billion in 2008. For 2010 as a 100 -20

whole, net shipping revenues had an important positive 90 -30

effect on GDP growth. In January February 2011 net
shipping revenues were down by -3.2%. 80 -40

In the manufacturing industry (accounting for about 70 -50

8% of value added), the falling trend of production
60 -60
continues mainly due to the substantial fall on production
Economic Sentiment (ESI)
of traditional industries, which face intensifying 50 Manufucturing Industry -70
competition from low cost countries, as well as the fall of Consumer Sentiment (R.H.A.)
production of industries which are related to the domestic 40 -80
construction activity. Therefore, manufacturing Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11

production fell by -4.7% yoy in Q4 2010, from -6.8% yoy

in Q3 2010, -3.9% yoy in Q2 2010 and -3.8% yoy in Q1
2010. In 2010 as a whole manufacturing production fell
by -4.8% (less than expected), following its substantial
fall by -11.3% in 2009 and by -4.5% in 2008.
In Q1 2011 manufacturing production fell again by -7.0%
yoy, from -4.1% in Q1 2010.
However, some important sectors of the Greek
manufacturing registered positive growth in production
in 2010 and in Q1 2011, including the chemical
industry (2010: 1.4%, Q1 2011: 2,5%), the
pharmaceutical industry (2010: 3.9%, Q1 2011: 1,0%),
ECONOMIC SENTIMENT: The Greek economic sentiment
(ESI) and business expectations in industry indices
registered a substantial fall in Q4 2010 (Diagram 7),
implying an equally dramatic fall of private consumption in
this quarter. However, economic sentiment recovered in
Q1 2011 reaching 79.4 in February and 78.4 in March
2011, from 73.7 in December 2010, again contributing to
a lower than expected fall of the volume of retail trade
and of GDP as a whole in Q1 2011. However, the
economic sentiment fell again to 74.2 in April 2011

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 11
following the multiple downgrades of the Greek economy
from the S&Ps and Moodys.
Diagram 7. Volume of Retail Sales
14%
14%
9%
9%
4%
4%
-1%
-1%
-6% -6%
-11% YoY % Change
-11%
-16% 6m Moving Avg
-16%
-21% -21%
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011
PRIVATE CONSUMPTION: The volume of retail sales has
registered a fall by -6.8% yoy in 2010, compared with a
fall of -9.3% in 2009. In January February 2011, the
volume of retail sales registered a -12.2% yoy fall from
the very high level of the index in January-February
2010, where there was a 5.4% yoy increase of this index.
Due to substantial favourable base effects, the falling
trend of the index of the volume of retail sales in the
remainder of the year will decelerate rapidly from April
2011 onwards, as shown in Table 2.
In addition, new passenger car registrations have
registered another substantial fall of -50.8% in January-
April 2011, following their -37.2% in 2010, a fall of -17.4%
in 2009 and -7.0% in 2008. Registrations fell to 39.08
thousand in the first four months of 2011, from 76.92
thousand in the same period of 2010. Therefore,
expenditure on imported cars fell to 201.8 million in
January-February 2011, from 468.0 million in January
February 2010.
FIXED INVESTMENT: Concerning investment in housing,
the falling trend of residential construction activity
as measured by the volume (m3) of building permits
continues unabated, registering a fall of -23.6% in 2010,
following a fall by -26.5% in 2009,-17.1% in 2008, -5.0%
in 2007 and -19.5% in 2006, from a big increase of 35.2%
in 2005. In fact, the volume of residential construction fell
to 35.32 million m3 in 2010, from 102.24 million m3 in
2005. These developments led to a continuous falling
trend of residential investment in real terms, which
reached -18.6% in 2010, -21.7% in 2009, -29.1% in 2008
and -8.9% in 2007. Thus, residential investment has now
fallen to 6.6 bln in 2010, from 14.7 bln in 2006 and it
is expected to fall further to 5.5 bln in 2011. This level is
extraordinarily low for Greece and a gradual recovery
may be expected from the early 2012. In the current
period the aforementioned adverse developments in
consumer and business confidence delay the revival of
both residential investment and economic activity in this
sector. In fact, the index of business expectations in
construction fell again to a low of 29.4 in April 2011, after
its recovery to 34.6 in February from 29.1 (an all time low)
in January 2011.
INFLATION: Inflation in Greece reached 3.9% in April
2011, from 4.5% in March 2011, 5.2% in December 2010,
as in October 2010, 5.6% in September and August 2010,
5.5% in July 2010, with average CPI inflation reaching
4.7% in 2010. This surge in inflation in 2010 was mainly
due to the fact that fiscal adjustment in Greece is set to
take place to a great extent through VAT and excise
taxes increases, as well as through price hikes of
services provided by deficit-ridden public sector entities.
Additional increases in VAT rates and other taxes from
early 2011, in combination with substantial increases in
the international price of oil and other commodities,
implied that inflation remained high in the first four months
of 2011 as well. Overall, inflation is expected to remain
high, above 3.5% average in 2011 as well, despite the
expected substantial fall of domestic demand.
BALANCE OF PAYMENTS: The current account deficit
(CAD), including net capital transfers, reached 7.04 bln
in Q1 2011, down -26.4% from Q1 2010 and it was a little
higher than the deficit in Q1 2009. The deficit reached
21.98 billion in 2010, down -7.7% from 2009, following its
substantial fall by -22.5% in 2009.
Developments in the Greek BoP in 2009, 2010 and Q1
2011 reflect the effect of the substantial fall of domestic
demand due to the international economic crisis (and the
huge fall in exports) in 2009 and Greeces own debt crisis
and the extensive fiscal adjustment and structural reforms
undertaken in 2010 and 2011, when export performance
was much better, especially in H2 2010 and in Q1 2011.
Of particular importance is the drop of the deficit of the
trade balance by -7.5% in Q1 2011 and by -8.1% in 2010,
following its fall by -30.2% in 2009. Exports of goods have
registered a healthy increase by 21.4% in Q1 2011 and
by 11.5% in 2010, following their fall by -22.7% in 2009.
On the other hand, imports of goods registered an
increase by 1.3% in Q1 2011, following their -1.6% fall in
2010, which is relatively small, mainly due to the
excessive increase by 26.8% in Q1 2011 and by 27.4% in
2010 of payments for imports of fuels. In fact, imports of
goods excluding fuels and ships fell by -8.8% in Q1 2011,
following their fall by -12.6% in 2010 and by -24% in
2009. Exports of goods excluding fuels and ships
registered a substantial increase by 16.2% in Q1 2011,
following their fall by -1.3% in 2010 and by -17.8% in
2009. Therefore, the trade balance excluding fuels and
ships, registered a new sizable fall by -22.9% in Q1 2011,
following its fall by -19.1% in 2010 and -27.1% in 2009.
A second important development was the increase by
4.1% yoy in Q1 2011 and by 4.7% in 2010 of the surplus
of the balance of services, following its fall by -26.2% in
2009. More specifically: Earnings from external tourism
were up 4.7% yoy in Q1 2011, following their fall by -7.6%
in 2010, following their fall by -10.6% in 2009. On the
other hand, revenues from shipping were down by -9.1%
in Q1 2011, following their increase by 13.8% in 2010.
Finally, payments for services abroad fell by -5.3% in Q1
2011, following their increase by 6.3% in 2010 from their
fall by -15.3% in 2009.
Thirdly, the deficit of incomes balance reached the 2.09
bln in Q1 2011, a little higher than the corresponding
deficit in Q1 2010. Payments for interest, dividends and
profits to foreign investors in Greek government bonds
and shares were slightly higher, by 0.6% yoy in Q1 2011,
following their fall by -10% in Q1 2010.
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 12
Finally, the surplus of current and capital transfers 80: -22.9%), from -35.6% at end-2010. Following these
balance was substantially higher by 2.1 billion in Q1 developments, at the end of April 2011 50.8% of the total
2011, contributing for the substantial fall of the CAD. stock exchange value of listed firms was in the hands of
In the capital account of the Greek balance of foreign investors ( 27.8 billion), up from 27.4 billion at
payments, net capital inflows reached 7.04 bln in Q1 end-2010.
2011, from 9.3 bln in Q1 2010. Net capital outflow
through foreign direct investment (FDI) reached 0.31 Diagram 8. Credit Expansion
bln in Q1 2011 from net inflow of 0.74 billion in Q1 45%
2010. This was mainly due to lower FDI by foreign firms 40% Mortgages
in Greece of 0.06 bln (Q1 2010 0,9 bln), as well as to 35% Consumer Loans
the increase of FDI by Greek firms abroad to 0.32 billion 30%
Business Loans
(Q1 2010: 0,16 bln). Net Capital outflows for portfolio
25%
investment abroad by Greek residents reversed to
20%
inflows of 1.12 bln in Q1 2011 (inflows of 3.6 bln in Q1
2010). On the other hand, in Q1 2011, net capital 15%
outflows from foreign residents for portfolio investment in 10%
Greece reached the 7.2 bln in Q1 2011, from inflows of 5%
1.35 bln in Q1 2010. Finally, there was a substantial net 0%
inflow of other investments (primarily bank and -5%
Government borrowing and lending) of 13.4 bln in Q1 -10%
2011, from a net inflow of 3.61 bln in Q1 2010. This net 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
inflow in Q1 2011 comprises a net inflow of 4.99 bln
from the liquidation of deposits abroad from domestic
Diagram 9. Athnes Stock Exchange Indices
residents, outflows of 12.6 billion from deposits of
foreign residents in domestic financial institutions and the 7000
inflow of 21.1 bln of official financing.
6000
Table 7. Greek Balance of Payments ( Billions)
Jan- Jan- 5000
2009 2010 Mar'10 Mar'11
Trade Balance (TB) -30,76 -28,28 -8,22 -7,61 4000

Exports 15,32 17,08 3,57 4,33

3000
Imports -46,09 -45,36 -11,79 -11,94
Services Balance 12,64 13,23 1,16 1,11 2000
Tourism Receipts 10,40 9,61 0,48 0,50
Shipping Receipts 13,55 15,42 3,68 3,34 1000
Income Balance -8,98 -9,23 -1,90 -2,09
Payment of Interest, Divid. & Profits -12,86 -12,64 -2,81 -2,83 0
Transfers' Balance 3,31 2,30 -0,59 1,55 2005 2006 2007 2008 2009 2010 2011
Current Account (CA) -23,80 -21,98 -9,56 -7,04
ASE Compostive FTSE 20 FTSE Mid Cap 40 FTSE Small Cap 80
CA (% of GDP) -10,1% -9,6% -4,2% -3,1%
Capital Account 24,40 21,99 9,24 7,12
Source: Bank of Greece

MONEY & FINANCIAL M ARKETS: Credit expansion to 2. ROMANIA

businesses and households fell by -0.4% at end-March ECONOMIC OVERVIEW: The economy has started to
2011, from its fall by -0.3% at end-February 2011 and 0% recover. GDP grew by 1.6% yoy in Q1 of 2011, which is
at end-December 2010. In particular, the annual rate of the first annual increase since Q4 of 2008.
change of mortgage and consumer lending stood at -
Real GDP (% YoY, unadjusted data)
1.4% and -3.4% respectively at end January 2011, from -
1.1% and -3.0% respectively at end-February 2011. 8,5 9,6 9,4
7,4
According to ECB data, household indebtedness
3,1
(including the numerous class of self-employed) in 1,6
Greece reached 51.0% of GDP at end-March 2011,
-0,4 -0,6 -1,3
compared to 56.2% of GDP in the Eurozone. -2,2 -2,2

-6,1
Moreover, lending growth to businesses accelerated to -7,1 -6,5 -7,1
-8,7
1.1% at end-March 2011, up from 0.9% at end-February
2011 and 0.9% at end-December 2010. Overall, the Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
annual rate of change of credit to the private sector is 2008 2009 2010 2011
expected to decelerate further to around -3.0% by year- Source, Eurostat, NIS of Romania
end 2011, from -0.1% at year-end 2010. For 2012, a
recovery of up to 1.0% credit expansion is contemplated. Following the contraction by 7.1% in 2009, GDP declined
By the end of March 2011, the main ASE composite index by a further 1.3% in 2010 under the impact of the fiscal
was down -23.3% on a yoy basis (FTSE-20 stocks: - consolidation efforts which the government had
29.6%, mid-cap FTSE-40: -28.4% and small caps FTSE- implemented in the context of a 20 bln IMF-EU backed
loan program. The authorities and the IMF became

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 13
engaged, in March 2011, in a new 24-month agreement period poor performance as a result of declining private
worth about 3.5 billion (with additional precautionary remittances inflows. FDI inflow amounted to 379 million
support from the EU of 1.4 billion and a loan of 0.4 in Q1 of 2011 from 486 million a year ago.
billion from the World Bank). The new accord is Current Account: Jan.-Mar.'11 ( million)
supportive of the economic recovery by focusing on Jan.-Mar.'11 Jan.-Mar.'10 0,2646
enhancing potential growth via targeted policies in Exports 11.016 7.902 39%
Imports 11.471 9.189 25%
conjunction with fiscal consolidation measures. Trade Balance -455 -1.287 -65%
Services Balance -305 -279 9%
FISCAL POLICY: The successor agreement with the IMF Income Balance -603 -412 46%
envisages a reduction of the budget deficit to 4.4% of Current Transfers Balanace 729 434 68%
GDP in 2011 and 3% of GDP in 2012. The satisfactory Current Account Balance -634 -1.544 -59%
Source: Central Bank of Romania
execution of fiscal consolidation measures by the
government helped reduce the budget deficit to 6.5% of EXTERNAL DEBT: Total external debt increased by 2.7%
GDP in 2010, versus a target of 6.7% of GDP, from 7.3% since the start of the year to 93.4 billion but declined as
of GDP in 2009. The effect of the fiscal adjustments a percent of GDP to 73.4% at end-March 2011 from
already implemented will contribute significantly towards 74.5% at end-2010. The composition of total external
achieving the 2011 budget deficit target. Already in Q1 of debt into medium & long-term and short-term remained
2011 the budget deficit narrowed to RON 5.2 billion or 1% unchanged at 80% versus 20%. Borrowings from the IMF,
of GDP from 1.5% of GDP in Q1 of 2010. With regards excluding the amount received by the Ministry of Finance,
the 2012 budget deficit target, the IMF estimates that increased by 6.7% during this period to 9.7 billion.
some additional measures will be needed, including
Credit Growth (% YoY)
addressing problem areas such as the low efficiency and
high complexity of the tax system. 85%
70%
INFLATION: Inflation spiked to 8.4% in April 2011. This
55% Mortgages
development is mainly due to the increase in the prices of Business
energy and food products as core inflation decelerated in 40% Consumer
the same period to 3.8% in April 2011. Headline inflation 25%
is still affected by the 5 pps VAT increase to 24% 10%
introduced in July 2010. Barring any second round -5%
effects, inflation should moderate considerably in H2 of -20%
2010 as the initial pass through from the VAT hike will 2008 2009 2010 2011
have run its course. The Central Bank inflation forecast Source: Central Bank of Romania
stands at 3.0% for end-2011 and end-2012 and 2.5% for
end- 2013 onwards, within a band of 1 pp. MONEY & FINANCIAL M ARKETS: Improving financial
Consumer Price Inflation - (% YoY) investor sentiment has contributed to an appreciation of
the local currency by 4.1% versus the Euro and by 9.2%
10%
versus the Dollar since the start of from the VAT hike will
9%
have run its course. The Central Bank inflation forecast
8%
stands at 3.0% for end-2011 and end-2012 and 2.5% for
7%
end- 2013 onwards, within a band of 1 pp.
6%
5% Exchange Rate Developments
4% 4,5
3%
4,0
2%
1% 3,5
0%
3,0
2008 2009 2010 2011
Source: Eurostat Headline Core 2,5
RON per EUR RON per USD
2,0
BALANCE OF PAYMENTS: The current account deficit 2008 2009 2010 2011
stabilised at 4.2% of GDP in 2010. In 2011 it is expected Soure: Bloomberg
that the current account deficit will widen moderately as
domestic demand picks in the latter quarters of 2011. In The Central Bank of Romania undertook a series of policy
Q1 of 2011 the current account deficit narrowed to 0.5% rate cuts reducing the basic rate from 10.25% in January
of GDP from 1.3% of GDP a year ago, as exports leaped 2009 to 6.25% in May 2010. It has since kept it there until
by 39% yoy versus an increase in imports of 25% causing its latest Board meeting on 3.5.2011. The Central Bank
the trade deficit to shrink. It is further encouraging that the argues that the upward trend in inflation in Q2 of 2011 is
current transfers balance is improving, having increased temporary and that deceleration will ensue in H2 2011.
by 58% yoy to 729 million in Q1 of 2011, following a

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 14
Credits expansion (euro basis) to the private sector
remains subdued. Credit expansion stood at 1.6% yoy in
March 2010 (businesses: 4.1%, households: -1.1%). The
non performing loans stood at 12.7% at end March 2011
up from 11.9% at end-2010 and 7.9 followed a
consistently upward trend to 11.9% at end- 2009.
Commercial banks remain well capitalized with a capital
adequacy ratio remained high at 14.7% at end-December
2010 versus a mandatory ratio of 8%.
3. BULGARIA
ECONOMIC OVERVIEW: The economy is gradually
returning to positive growth; however the pace of the
recovery remains subdued. GDP growth turned positive in
H2 2010 contributing to a, marginally positive, growth of
0.2% in 2010. In Q1 of 2011 GDP grew by 2.5% yoy from
2.8% in Q4 of 2010. Net exports continue to underpin the
recovery. The reliance on net exports raises concerns, as
growth prospects in the EU remain subdued. In terms of
the supply components of economic activity, industrial
output remained the principal contributor of annual GDP
growth in Q1 of 2011, as was the case in H2 of 2010.
However the pace of annual industrial output growth
slowed and was actually negative on a quarterly basis.
On the other hand, the annual growth of service-sector
output picked up somewhat in Q1 of 2011.
Real GDP (% YoY, seasonally and calendar adusted data)
6,9 6,4 6,5 6,2
4,8
2,8
0,5
-0,8-0,3
-3,3
-4,6
-6,0-6,7-5,1
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
2008 2009 2010
Sourece: Eurostat, NIS Bulgaria
Industrial Production - (% YoY)
20%
IP Total 3m MA
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
2008 2009 2010
Source: Datastream
FISCAL POLICY: Fiscal policy remains overall restrictive.
The annual growth of the consumption of the general
government turned briefly positive in the last quarter of
2010 and then returned to negative territory. The budget
deficit widened to 3.9% of GDP in 2010 from 0.8% of
GDP in 2009. The medium-term plan of the government
is to reduce the budget deficit to 2.5% of GDP in 2011,
1.5% of GDP in 2012 and 1% of GDP in 2013. However
the absolute priority for 2011 is to reduce the budget
deficit below the 3% of GDP threshold in accordance with
the Stability and Growth Pact. In Q1 of 2011 the budget
deficit was 1% of GDP, from 2.4% of GDP in the same
period of last year, as public revenues grew by 6.9% yoy
and public expenditures declined by 8.7%, mainly due to
lower subsidies, but also as a result of lower maintenance
costs and expenditures on wages and salaries.
In the coming periods the government may need to
contend with slower economic growth and hence slower
growth from tax revenues than in the past and may
therefore need to focus more on rationalization of the
public sector and keeping public expenditures low as a
means to further narrowing the budget deficit.
The balance on the fiscal reserve account (FRA) stood at
BGN 4,699 million at the end of March 2011 from BGN
6,012 million at end-2010 and BGN 7,673 at end-2009.
The FRA has clearly provided a welcome buffer for the
government at a time of dwindling tax revenues. However
as these reserves are needed to support the currency
board the government will need to make efforts in order to
gradually rebuild them.
INFLATION: Overall, since the last quarter of 2009,
inflation accelerated to 4.6% in March 2011. Excluding
processed food and energy products, the increase in
prices has been much less pronounced as evidenced by
the lower level of core inflation. In April of 2011 headline
2,5 inflation dropped to 3.3% as the rate of increase of prices
0,2 of alcoholic beverages and tobacco declined
substantially.
Consumer Price Inflation - (% YoY)
16%
14%
2011 12%
Headline Core
10%
8%
6%
4%
2%
0%
2008 2009 2010 2011
Source: Eurostat, NIS Bulgaria
BALANCE OF PAYMENTS: The trade deficit continues to
2011
decline considerably on an annual basis into the first
quarter of 2011. The improvement in net exports is the
primary factor in the narrowing of the current account
deficit to just 0.8% of GDP in 2010 from 9.9% of GDP in
2009 and 26.9% of GDP in 2007. In Q1 of 2011 there was
in fact a surplus in the current account equal to 0.7% of
the expected GDP for 2011 from a deficit of 1.5% of GDP
in Q1 of 2010. The services balance also improved as
GREECE AND SOUTHEASTERN EUROPE
ECONOMIC AND FINANCIAL OUTLOOK PAGE 15
did, by a lesser amount, the incomes balance. The Credit Growth (% YoY)
current transfers balance deteriorated marginally mainly 70%

because of lower transfers from the EU; private transfers 55%

on the other hand appeared to be stabilising. Net FDI, 40%
Mortgages
Business
portfolio and other investment remained relatively Consumer
25%
subdued, at 0.7%, (negative) 0.1%, and (negative) 1.9%
10%
of GDP in Q1 of 2011 without having changed notably
from their year ago level. -5%

Current Account: Jan.-Mar.'11 ( million) -20%

Jan.-Mar.'11 Jan.-Mar.'10 % 2008 2009 2010 2011
Exports 4.757 3.058 56% Source: Central Bank of Bulgaria
Imports 4.710 3.625 30%
Trade Balance 47 -568 -108%
Services Balance 134 7 1874%
Income Balance -287 -379 -24% Exchange Rate Developments
Current Transfers Balanace 359 386 -7%
2,2
Current Account Balance 253 -554 -146%
Source: Central Bank of Bulgaria 2,0

EXTERNAL DEBT & INT. RESERVES: Total gross external 1,8

BGN per EUR BGN per USD
debt was 36.1 billion at the end-February 2011 from
1,6
36.7 billion at end-2010 and 37.7 billion at end-2009.
The ratio of foreign reserves with the Central Bank to 1,4
short-term debt was 110% at end- 2010 having gradually 1,2
increased from a low of 90% at end-May 2009. 2008 2009 2010 2011
Central Bank Reserve Assets / Short-term External Debt Soure: Bloomberg

140%

February 2010 (% of GDP)

130% - Long-term external debt: 26.7%
- Short-term external debt: 29.2%
4. CYPRUS
- Direct investment (intercompany lending): 38.5% ECONOMIC OVERVIEW: The economy expanded by 1.8%
120% - BNB Reserve Assets: 32.3%
yoy in Q1 of 2011 from 1.0% in 2010. This represents a
110%
near recovery from the 1.7% contraction recorded in
2009. A rebound in trade, tourism and transport services
100% helped the economy to accelerate. On the other hand,
110% construction and manufacturing remained subdued.
90%
Real GDP (% YoY, unadjusted data)
80% 10
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11
4,8 4,2
Source: Central Bank of Bulgaria 3,3 3,6
2,2 1,9 2,5
0,7 0,6 1,0 1,8
0
MONEY & FINANCIAL M ARKETS: Bulgaria maintains a -0,9
-1,7 -1,7
currency board pegging the Bulgarian Lev (BGN) to the -2,7-2,8

euro at a fixed exchange rate of 1.95583 BGN to 1 Euro

Political commitment to the arrangement remains strong.
Credit growth to the private sector remains weak. Since
April 2010 credit expansion has hovered at a very narrow
range around 1.8%. Credit expansion stood at 1.9% yoy
in March 2011 from 1.2% in December 2010, 3.8% in
December 2009 and 31.6% in December 2008. Business
financing grew by 3.4% yoy in March 2011 and credit to
households declined by 0.7%. Consumer credit declined
by 3.5% while mortgages grew by 2.7%. As the currency
board arrangement remains a key pillar of monetary
policy, the Central Bank is constrained as to the
measures it may take to boost credit expansion to the
private sector. However, in view of the very low level of
credit expansion the Central Bank may yet decide to
lower the reserve requirement.
-10
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
2008 2009 2010 2011
Source: NIS of Cuprus
The outlook for the economy features a moderate growth
in 2011 driven by private consumption and exports.
Following a similar move by Moodys, Standard and
Poors downgraded Cypruss long-term sovereign rating
by one notch to A- from A in March 2011, citing increased
vulnerability of its banking sector from a potential debt
restructuring in Greece. Fitch has placed Cypruss A
rating on credit watch negative.
FISCAL POLICY: The budget balance deteriorated in Q1 of
2011 in comparison with the corresponding period of
2010. The overall public sector balance registered a

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 16
deficit of 311.6 million from 47.1 million in 2009. The from 998 milion in 2009. Portfolio investment recorded a
total revenue amounted to 1,441.2 million while the total net outflow of 1.4 billion in 2010 which is considerably
expenditure reached 1,752.8 million. The moderate less than that which it recorded in 2009 (11.4 billion).
economic recovery contributed to this development with However other investment recorded a net inflow of almost
public revenue decreasing by 7.1% yoy and public 2 billion from 11.4 billion in 2009.
expenditure increasing by 9.6% yoy. Cyprus according to Current Account: 2010 ( million)
Ministry of Finance managed to narrow its deficit to 4.9%
2010 2009 %
in 2010 from 6.0% in 2009, although the latest figures Exports 1.151 995 16%
released by Eurostat revealed a budget deficit of 5.3% for Imports 5.833 5.227 12%
2010. Cyprus has submitted to the EU a Stability Trade Balance -4.681 -4.232 11%
Services Balance 3.798 3.362 13%
Programme, which contains specific measures to restrict Income Balance -474 -265 79%
the public deficit at 4.5% of the GDP in 2011 and below Current Transfers Balance 3 -184 -101%
3% in 2012. The 2011 budget foresees revenues of Current Account Balance -1.355 -1.319 3%
Source: Central Bank of Cyprus
around 6.86 billion and expenditures of 7.62 billion.
Finally, according to Eurostat the government debt MONEY & FINANCIAL M ARKETS: Credit growth to the
increased to 60.8% of GDP in 2010 from 58.1% of GDP private sector remains below the historical average.
in 2009. Credits to the private sector grew by 7.3% in March 2011
from 7.6% in February 2011 and 8.3% in March 2010.
INFLATION: Inflationary pressures are elevated during the
Business loans grew by 7.1% yoy and loans to
first four months of the year due to the food and energy
households by 7.6% yoy in March 2011. Mortgages rose
price pick up. The imposition from January of 5% VAT
11.2% yoy in March 2011 from 12.8% in February 2011.
rate on food and medicine which was an obligation of
On the other hand deposit growth has accelerated to
Cyprus to the EU since 2004 as well as the increase in
12.9% in March 11 from 20.3% in December 2010, thus
excise tax on tobacco products last December
bringing the loan-to-deposit ratio down to 91% in March
contributed to the pick up in prices. Inflation rose 3.5% in
2011 from 87% in December 2010. Deposits at banks in
April 2011 from 3.2% in the previous month and 2.5% in
Cyprus held by other euro-area residents rose to 4.5
April 2010. For the period January-April 2011, the CPI
billion in March from 2.2 billion a year earlier. Deposits
recorded an increase of 3.2% compared to the
of non-euro residents climbed 17.2% to 20.5 billion,
corresponding period of 2010, mainly as a result of
according to the Central Bank of Cyprus.
increases in the prices of certain clothing and footwear
items, electricity and petroleum products.
Consumer Price Inflation - (% YoY)
5. SERBIA
6%
ECONOMIC DEVELOPMENTS: The turnaround of the
5%
economy continues. Following a GDP increase of 1.8%
4%
in 2010, Q1 2011 GDP grew by 3% yoy. This trend is
3%
expected to continue resulting in a full recovery of the
2%
2008 level of GDP after its decline by 3.5% during the
1%
2009 recession (revised down from negative 3.1%).
0%
Real GDP (% YoY, unadjusted data)
-1%
12
-2% 10 8,9
2008 2009 2010 2011 8 6,3 5,7
Headline Core 6 4,6
Source: Eurostat 2,9 3,1 3,0
4 1,7 1,7 1,8
2 0,4
BALANCE OF PAYMENTS: The current account deficit 0
-2
stood at 1,355 million in 2010 at around the same level -4 -2,2-1,7
-6 -4,3-4,5 -3,5
as in 2009. As a percent of GDP the current account -8
deficit narrowed to 7.2% in 2010 from and 8.3% in 2009. Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
The stabilisation of the current account balance is the 2008 2009 2010 2011
result of the widening of the trade deficit and of the sharp Source: NIS of Serbia

increase in the surplus in the services balance. The

increase in the trade deficit by 449 million in 2010 was
offset by a corresponding increase in the services
surplus, which is attributable primarily to travel and
various business services. In the capital account, direct
investment recorded a net outflow of 235 million as
residents continued to trim down their investment abroad.
Inflows of direct investment were 763 million in 2010
The improvement in the outlook is underpinned by a
recovery of exports. Domestic demand has so far
remained relatively subdued as the labor market,
especially in the private sector, has yet to benefit from
the pick up in the GDP level. However it is expected that
both components of domestic demand, total final
consumption and investment, will pick up somewhat in
the coming quarters and make a positive contribution,

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 17
along with net exports, to 2011 GDP growth which is 4% respectively with a tolerance bond of plus/minus 1.5
expected at around 3%. percentage points.
Industrial Production - (% YoY) BALANCE OF PAYMENTS: After narrowing by a whopping
30% IP Total 3m MA 14 percentage point to 6.9% of GDP in 2009 the current
25%
20% account deficit increased marginally to 7.1% of GDP in
15% 2010. This development occurred despite the continued
10%
5% narrowing of the trade deficit as this was offset by lower
0%
-5%
remittances and a declining current transfers surplus.
-10% The trade deficit widened by 8% yoy in Q1 of 2011 as
-15%
-20% exports increased by 34% and imports by 22% albeit from
-25% a higher base. The current transfers surplus declined by
2008 2009 2010 2011
15% yoy as a result of the decline of private remittances
Source: Datastream
inflow by 10% yoy. In terms of financing, net foreign direct
investment stood at 1.3% of GDP in Q1 2010, little
FISCAL POLICY: The fiscal consolidation effort has been changed from its year ago level; other investments
marked, however challenges remain. As the loan accord recorded a net outflow of 0.5% of GDP in Q1 of 2011
with the IMF has come to an end and elections scheduled from a net inflow of 0.2% of GDP a year ago; portfolio
early in 2012 are approaching, the authorities will need to investment stood at 2.2% of GDP in Q1 of 2010 having
find a new source of vitality in order to press on with the increased from 0.2% of GDP in Q1 of 2010.
policy agenda. The Central Bank and other stakeholders
Current Account: Jan.-Mar.'11 ( million)
are advocating for a new arrangement with the IMF that Jan.-Mar.'11 Jan.-Mar.'10 %
will be on a precautionary basis as a platform for Exports 1.180 878 34%
achieving further progress in terms of the policy reform Imports 1.958 1.598 22%
Trade Balance -777 -721 8%
agenda. According to statements from government Services Balance 11 -8 -238%
officials such a deal will be in place as soon as Income Balance -35 -69 -50%
Current Transfers Balanace 297 351 -15%
September 2011.
Current Account Balance -503 -447 13%
Consumer Price Inflation - (% YoY) Source: Central Bank of Serbia

EXTERNAL DEBT & INT. RESERVES: In the first two months

14% of 2011 the stock of external debt decreased by 4.7% to
12% 22.7 billion or 71% of GDP. The split between short- and
10% medium/long-term debt and between public- and private-
8%
sector debts, as a percent of the total, stands at 4.9% to
95.1% and 39.1% to 60.9% respectively.
6%
4% The Central Banks foreign exchange reserves stood at
9.92 billion at end-March 2011. Including commercial
2% Headline Core banks, total foreign exchange reserves amounted to
0% 11.3 billion at end-March 2011.
2007 2008 2009 2010 2011
Stock of External Debt as of 31.12.2010 (in million of EUR)
Source: Central Bank of Serbia Total External Debt 22.672
Public Sector External Debt 8.861
Medium and long-term debt 8.861
INFLATION: Inflationary pressures are rising and have of which IMF sba 1.475
Short-term Debt 0
become a significant source of concern for the monetary Private Sector External Debt 13.811
authorities. Inflation has been accelerating since H2 Medium and long-term debt 12.696
2010, reaching a high of 14.7% yoy in April 2011. Core of which Banks 3.347
of which Enterprises 9.348
inflation which excludes regulated prices, prices of Short-term Debt 1.116
petroleum products and fruit and vegetables, has followed of which Banks 1.036
of which Enterprises 79
a broadly similar trend. A primary contributor to the steep Source: Central Bank of Serbia
rise in inflationary pressures has been unusually high
increases in food prices which have come at the back of MONEY & FINANCIAL M ARKETS: Responding to mounting
adverse local weather patterns and international food inflationary pressures the Central Bank has repeatedly
supply shocks. The depreciation of the local currency for raised the key policy by a cumulative 485 basis points in
most of 2010 has been a further contributing factor via the last year from 7.65% in April 2010 to 12.5% since
rising import prices. The Central Bank is expecting April 2011. The Central Bank is expecting that the impact
inflation to subside in H2 2011 and early 2012 in of these policy rate increases will start to feed through to
response to food price stabilisation and under the impact
of past monetary policy measures. The Central Banks
inflation target for end-2011 and end-2012 is 4.5% and

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 18
the economy from H2 2011. FISCAL POLICY: The general budget position turned to a
Exchange Rate Developments deficit of ALL 11.8 billion (EUR 83.6 million) in Q1 of 2011
110 RSD per EUR RSD per USD
from a surplus of ALL 700 million a year ago. The budget
deficit has reached ALL 11.6 billion or 0.9% of this years
100
projected GDP. The gap between revenues and
90
expenditures comes as a result of a surge in public
80 investments with capital expenditure increasing by 39.9%
70 in Q1 of 2011 on annual basis. Total budget revenues
60 rose marginally by 0.4% yoy to ALL 77.5 billion as the
50
increase in tax receipts of 7.6% yoy was offset by a drop
in non-tax revenues of 41.2% yoy mainly due to base
2008 2009 2010 2011
Soure: Bloomberg effect. Corporate tax receipts rose by 24.1% yoy, pointing
an improvement of the business environment. The
Credit expansion to the private sector has stabilized
government targets the general budget deficit of ALL 46.8
around 15% yoy since December 2010 following a period
billion or 3.5% of GDP in 2010 from ALL 36.9 billion or
of steady acceleration from its previous low of 2.9% yoy
3% of the GDP in 2009.
in October 2010 (Euro basis). Credit expansion to the
private sector in March 2011 was 14.3% yoy. Loans to INFLATION: Inflationary pressures remain high despite a
businesses grew by 16.8% yoy and to households by temporary decline recorded in March. The annual rate in
9.8%. The growth rate of private sector deposits remains March 2011 showed 4.3% increase, slightly lower than
lacklustre at just 5.4% yoy in March 2011 from 4.6% in February, when prices jumped to 4.5%. In Q1 2011
December 2010 and 16.8% in March 2010. The loan to inflation averaged 4.0% from 4.3% the corresponding
deposit ratio stood at around 135% in March 2011 from period in 2010. Central Banks inflation target range is
131% in December 2010 and 119% in December 2009. 2%-4%. Imported goods and impact of government tax
hikes are the main reasons behind the high inflation this
year. The outlook for the next months is that inflation will
6. ALBANIA lose momentum, as result of domestic production in
vegetables and grains.
ECONOMIC OUTLOOK: Albania GDP growth in 2010 stood
at 3.9%, the same level as in 2009, despite the difficult Consumer Price Inflation - (% YoY)

economic environment. GDP growth in Q4 2010 was 5,0%

5.4% from 5% in Q3 2010 and -0.6% in Q4 2009. 4,5%
Following negative GDP growth in Q4 2010 only, GDP 4,0%
growth followed a consistently upward trend, suggesting a 3,5%
return to higher economic growth in the coming quarters. 3,0%

The main sectors that drove the expansion in 2010 were 2,5%

industry, which registered a growth of 20.5%, 2,0%

1,5%
transportation with 9.7%, and finally services and trade,
1,0%
growing with 5.9% and 9.5% respectively. The
0,5%
construction sector, continued to be depressed, with
0,0%
21.0% less activity compared with 2009. Remittances 2008 2009 2010 2011
which account for more than 10% of GDP fell by 11% to Source: Datastream

690 million in 2010 from 781 million in 2009. This is the

biggest drop the last ten years and it attributed to
increasing difficulties that Albanian immigrants face in BALANCE OF PAYMENTS: The trade deficit has been
Italy and Greece due to high level of unemployment. substantially reduced, by -16% in 2010, as exports
increased by 52% versus a 1% increase in imports (US
Real GDP (% YoY, unadjusted data)
dollar basis). The depreciation of the Lek in 2010 by 8.1%
10
9,9 9,2 9,9 against the main international currencies contributed to
8,3
7,5 this development.
8
5,0 5,4
Current Account: 2010 ($ million)
6 4,3 4,3 4,3 3,9 3,9 2010 2009 %
3,0
4 2,2 Exports 1.548 1.048 52%
2 Imports 4.305 4.264 1%
Trade Balance -2.757 -3.216 -16%
-1
-0,6 Services Balance 233 179 48%
-3 Income Balance -101 -145 -92%
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Current Transfers Balanace 1.222 1.307 -0,7%
2008 2009 2010 Current Account Balance -1.404 -1.875 -37%
Source: NIS Albania Source: Central Bank of Albania

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 19
As a result of the improvement in the trade balance the
current account deficit narrowed to 11.9% of GDP in 2010
from 15.5% of GDP in 2009. Foreign direct investment
increased to $ 1,110 million or 9.4% of GDP in 2010 from
$ 942 million or 7.8% of GDP in 2009. On the other hand
portfolio investment recorded a net inflow of $ 303 million
in 2010 from an inflow of $ 18 million a year ago. Other
investments recorded a net outflow of $ 295 million from a
net inflow of $ 349 million.
MONEY & FINANCIAL M ARKETS: During the Q1 2011 the
Albanian Lek (ALL) continued to appreciate against the
US Dollar but slightly depreciated against the Euro.
Against the Euro the Lek has been depreciating 1.31%
and appreciating against US Dollar by 4.4%.
The Bank of Albania raised its key interest rate by 0.25
bps at 5.25% in March 2011 due to high inflationary
pressures. This was the first hike since July 2010. In
March 2011 credit expansion accelerated to 9.8%, with
loans to businesses growing by 13.6% yoy and to
households by 1.9% yoy. The high growth of business
lending is due to the easing of credit standards to
corporates (SMEs, large corporates). The loans to deposits
The economic outlook in the coming quarters will be
supported by governments decision to draw 220 million
out of the 390 million from its precautionary 2-year
credit line with IMF which carries low interest rate (1.4%).
This amount will be used to finance the current years
budget deficit and debts needs. The economy will begin
to grow faster as capital investment increasing and labour
market improves.
FISCAL POLICY: During 2009-10 the government pursued
a fiscal policy which aimed to limit the economic
recession. Lower tax receipts in 2009 led to a budget
deficit of 2.7% of GDP. The latter, improved marginally in
2010 to 2.5% of GDP. As economic activity improves
government expects tax receipts to pick up and help
attain its budget deficit targets of 2.5% of GDP in 2011
and 2.2% of GDP in 2012. The early call elections (June
5, 2011) raises some concern as to the viability of this
years target.
Consumer Price Inflation - (% yoy, end of period)
6%
5%

ratio stood at 62% in March 2011 from 66% in December 4%

2009.
3%
Exchange Rate Developments
2%
150 ALL per EUR ALL per USD
140 1%
130
120 0%
110 -10 -10 -10 -10 -10 -10 -11 -11
Source: Central Bank and NIS of FYROM
100
90
80
INFLATION: Increasing international oil and food prices
70
contributed to the acceleration of headline inflation in 2011
2007 2008 2009 2010 2011
Soure: Bloomberg from 3% in December 2010 to 4.8% in April 2011.
Accordingly, the Central Bank revised upwards its average
inflation forecast for 2011 from 3% to 4.5%-5.0%. In Q2 of
2011, the Central Bank expects inflation to reach 5.5%
7. FYROM before starting to decelerate.
ECONOMIC DEVELOPMENTS: Economic activity registered
Current Account: Jan.-Feb.'11 ($ million)
a moderate increase of 0.7% during 2010 boosted by Jan.-Feb.'11 Jan.-Feb.'10 %
strong export growth and investment spending, Exports 610 408 50%
particularly in the construction sector. According to IMFs Imports 1.072 659 63%
Trade Balance -462 -251 84%
Regional Economic Outlook-Europe, FYROMs economy Services Balance 17 3 387%
will expand by 3.0% in 2011 and 3.7% in 2012. Income Balance -25 -59 -59%
Current Transfers Balanace 241 215 12%
Real GDP (% YoY, unadjusted data) Current Account Balance -229 -91 150%
Source: Central Bank of FYROM
10
8 6,5 BALANCE OF PAYMENTS: The current account deficit for
5,9
6 5,2 5,0
2010 narrowed to 2.8% of GDP from 6.7% of GDP in
4 2,5 2,3 2009. The current account deficit widened to $ 229 million
2 1,1 1,3 0,7
0,2 or 2.3% of projected GDP in the period Jan.-Feb. 2011
0 from $ 91 million in the corresponding period of 2010. The
-2 -1,3 -1,5
-2,0
-0,9
-1,7 observed widening of the current account deficit is due
-4
primarily to the widening of the trade deficit by 84% on an
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
annual basis as imports increased by 63% to $1,072
2008 2009 2010
million (on the back of increasing international energy
Source: NIS of FYRMOM prices). Net FDI inflows increased by 413% yoy in the first

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 20
two months of 2011 to $ 137 million and covered around
60% of the current account deficit.
MONEY & FINANCIAL M ARKETS: Despite the recent
uptrend in the inflation rate the Central Bank has kept the
rate on Bank of FYROM 1Month Bills to 4.00% from 4.1%
in December 2010 and 9% in December 2009. The
Lombard rate remains at 5.5% since last Novembers cut
from 6.0%. Monetary policy continues to be supported by
the informal currency peg to the euro (MKDEUR 61).
Credit expansion (Euro terms) increased by 4.2% qoq in
Q1 2011 from a decline of 0.9% qoq in Q4 2010. In March
2011 loans to the private sector grew by 7.5% yoy (loans
to business by 8.4% and to households by 6.0%). The
loan to deposit ratio continued to decline, indicating lower
utilization of deposits for financing the private sector. In
particular, the ratio stood at 89.5% in Q1 2011 from
92.6% in Q3 2010.
Exchange Rate Developments
65
60
55 MKD per EUR MKD per USD
50
45
40
35
2007 2008 2009
Soure: Bloomberg
the terms of the program, the IMF did not go ahead with
the scheduled disbursal of the third loan tranche of $ 1.6
billion and further talks have been altogether postponed
until greater progress is recorded with key financial and
pension reforms. The pension expenditure accounts for
around 18% of GDP at present which is very high by
world standards.
FISCAL POLICY: Government budget revenues started
2011 with strong growth in nominal terms. The
preliminary data for the first four months of the year
shows, revenues grew 20.8% to UAH 89.8 bn, comprising
31.5% of the full year's plan. In particular, VAT proceeds
(UAH 40.47 bn) surpassed the planned figures for the
four month period by 9.6% and corporate income tax
proceeds (UAH13.1bn) by 4.9%. In 2011 the government
is pursuing a budget deficit target of 3.5% of GDP.
INFLATION: Overall inflation has followed a downward
trend, though it remains high relative to other economies,
at around 9%. The average inflation for the period Jan.-
Apr. 2011 was 8.1% from 10.8% the corresponding
period in 2009. The recent acceleration in inflation has
been driven by an upward adjustment in utility tariffs
(especially natural gas prices to households) and higher
price growth in food prices. This upward trend is expected
to continue despite the fiscal consolidation due to upward
pressures on international energy and food prices.
2010 2011 Consumer Price Inflation - (% YoY)
33%
29%

8. UKRAINE 25%
21%
ECONOMIC OVERVIEW: Following a deep recession in
17%
2009 when GDP declined by -14.8% the economy
resumed positive growth in 2010. The recovery has been 13%
supported by domestic demand, strong exports due to 9%
metal price boom and the stabilization of the political 5%
situation. GDP grew by 5.2% in Q1 2011 as industrial 2008 2009 2010 2011
output increased by 9.7% yoy on the back of a good Source: NIS of Ukraine
performance by export-oriented and processing industries
which benefit from growing foreign demand and soaring Current Account: Jan.-Mar.'11 ($ million)
Jan.-Mar.'11 Jan.-Mar.'10 %
commodity prices.
Exports 15.486 10.438 48%
Real GDP (% YoY, unadjusted data) Imports 18.345 11.667 57%
Trade Balance -2.859 -1.229 133%
10 Services Balance 1.304 1.018 28%
4,8 5,5 3,6 3,3 4,3 5,2
Income Balance -305 -340 -10%
0 Current Transfers Balanace 1.067 608 75%
Current Account Balance -793 57 -1491%
-10
Source: National Bank of Ukraine
-6,7

-14,8 BALANCE OF PAYMENTS: The current account deficit

-20 -17,3-15,7
-19,6 widened to 0.5% of GDP in Q1 of 2011 from 0% of GDP
-30 in Q1 of 2010. The current-account deficit was US $793
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
compared to a surplus of US $57 million a year ago. The
2009 2010 2011
deficit is expected to widen to around 4% of GDP by 2012
Source: NIS of Ukraine
as steel prices fall, and domestic consumer and
The outlook is however clouded by the effective freezing investment demand picks up further. The gap is expected
of the IMF program (worth 11.7 billion). Following the to be fully covered by a capital account surplus although
completion of the second review of the economy under

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 21
the later depends on new debt inflows, which easily could relatively low levels (well below the 250 bps mark for the
be limited if volatility returns on the capital markets. CDS USD SR 5Y) and the Istanbul Stock Exchange
XU100 Index, after increasing by a factor of 3.4 between
MONEY & FINANCIAL M ARKETS: The Central Bank (NBU)
November 2008 and November 2010 to a high of 71,543
retains its key policy rate at current level of 7.75%. It will
point, hovers around 70,000 points in early May 2011.
be tough for the Central Bank to deliver lower interest
rates, while inflation remains at high levels. The yield on However the specter of overheating raises questions
Ukraine's benchmark 10-year sovereign Eurobond due in regarding the sustainability of the recovery and is
2020 fell by 176 bps to 7.12% since the beginning of Q2 clouding the outlook for the economy, making the
2011, while the yield on the short-dated bond due in 2013 undertaking of appropriate fiscal and monetary policy a
declined 613 bps, to 4.29% steepening the yield curve. necessity.
Despite a recent hike in the beginning of May 2011, the Real GDP (% YoY, unadjusted prices)
CDS spread on Ukraine's 5-year sovereign debt stood at
15 12,0
435 bps at mid-May of 2011. In April, the Central Bank in 10,3 9,2 8,9
10 7,0 5,9
order to defend the hryvnia intervened in the currency 5,2
5 2,6
market by selling US $1,070.9 million. The hryvnia has 0,9 0,9
0
been weakening since March following the pause in the
-5 -2,8
IMF program. -4,8
-10 -7,0 -7,8
Credit expansion (euro basis) increased by 1.9% yoy in -15
-14,7
March 2011 having decelerated from a high of 19.6% yoy -20
in Augusts 2010. Loans to businesses grew by 9.6% yoy, Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
while loans to households declined by 14.0%. Private 2008 2009 2010
Source: Eurostat, NIS Turkey
sector deposit growth stood at 23.9% yoy in March 2011,
reducing the loan-to-deposit ratio to 181 % from 240% in
FISCAL POLICY: All the prognostics indicate that the
May 2009. According to the NBU data, NPL ratio reached
Justice and Development Party (ALP) will win the general
8.6% at end-March 2011, with their volume growing by
election on June the 12th and so remain in office. The
24.5% yoy to UAH 65bn. However, according to other
pace of fiscal tightening is likely to accelerate in H2 of
calculations the NPL levels could be much higher. Gross
2011 contributing to the continued improvement of the
international reserves reached $ 38.4 billion by end April,
fiscal finances. The fiscal deficit to GDP and debt to GDP
a new historical record, rising 45.5% yoy.
ratios narrowed from 5.5% and 46.3% in 2009 to 3.6%
Exchange Rate Developments and 42.8% in 2010. In the first two months of 2011 the
14 budget balance was in surplus position while in March it
12
swung into deficit. Overall in Q1 of 0211 the budget deficit
was TRY 4.1 billion from TRY 11.3 billion in Q1 of 2010
10
as higher public revenues (up by 10.5% yoy) more than
8
covered the increase in public expenditures (up by 6.6%
6
yoy). The government is targeting a budget deficit of TRY
4 33.5 bn or 2.8% of GDP in 2011.
2 UAH per EUR UAH per USD
Consumer Price Inflation - (% YoY)
0
2007 2008 2009 2010 2011 14%
Soure: Bloomberg 12%
10%
8%
9. TURKEY 6%
ECONOMIC OVERVIEW: The economy fully recovered its 4%
pre-crisis level of economic activity as GDP grew by an 2% Headline Core
impressive 8.9% in 2010 more than making up the GDP
0%
decline of -4.8% of the 2009 recession.
2007 2008 2009 2010 2011
GDP in Q4 of 2010 grew by 9.2% yoy on top of a 5.9% Source: Eurostat, NIS Turkey

increase in Q4 of 2009. This development surprised as it

reversed a previous trend of decelerating GDP growth
(Q1: 12 %, Q2: 10.3%, Q3: 5.2%) which had given basis
to the argument that the upswing in the economic activity
was mostly the result of base effects and may not be
sustainable. The recovery in economic activity has been
well received by the markets. CDS spreads remain at
INFLATION: After reaching a peak in April 2010 at 10.19%,
inflation has been on a downward trend reaching a low of
4.0% in March 2011. Core inflation, which excludes
energy products and seasonal food, has followed broadly
the same trend. In April 2011 inflation quickened
marginally to 4.26% which is still at a relatively
comfortable, low, level. However the markets remain

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 22
vigilant over the prospect of accelerating inflation as the Exchange Rate Developments
Central Banks unorthodox policy mix has included 2,4
decreasing the policy rate to a record low of 6.25% since
January in order to reduce speculative capital inflows. 2,2
The Central Banks forecasts for end- 2011 and 2012 2,0
inflation are 6.9% and 5.2% respectively (recently revised
upwards from 5.9% and 5.1%). 1,8 TRY per EUR TRY per USD

BALANCE OF PAYMENTS: In the background of the strong 1,6

economic rebound all eyes are on the ballooning current 1,4

account deficit which rose to 6.7% of GDP or $ 48.5 2009 2010 2011
billion in 2010 from 2.3% of GDP in 2009. This is seen to Soure: Bloomberg
be the result of overtly high rates of credit expansion
leading to domestic demand growth outstripping exports.
The strong appreciation of the local currency against the
Dollar and the Euro through much of 2010 contributed to
the erosion of competitiveness. However since November
2010 this trend had reversed as the local currency is
depreciating against most of the major currencies
following the sharp lowering of the policy rate by the
Central Bank to 6.25%. While this development has
contributed to the pick up of exports from 10% in 2010 to
19% yoy in Q1 of 2011 import growth accelerated to 46%
on an annual basis leading to a doubling of the current
account deficit from its year ago level to around 2.8% of
GDP. This development can be attributed primarily to
rising oil prices as Turkey is a major net importer of
energy as well as to continued strong domestic growth.
Current Account: Jan.-Mar.'11 ($ million)
Jan.-Mar.'11 Jan.-Mar.'10 %
Exports 33.081 27.884 19%
Imports 53.716 36.717 46%
Trade Balance -20.635 -8.833 134%
Services Balance 1.056 859 23%
Income Balance -2.978 -2.319 28%
Current Transfers Balanace 439 264 66%
Current Account Balance -22.118 -10.029 121%
Source: Central Bank of Turkey

MONEY & FINANCIAL M ARKETS: The Central Bank of

Turkey is continuing its unconventional policy of low
interest rates to act as a deterrent against speculative
capital inflows and high reserve requirements to absorb
domestic liquidity, decelerate credit growth, and slow
down domestic demand growth. As evidenced by the
depreciation of the exchange rate (by 8.9 % and 2.6%
against the Euro and the U.S. Dollar respectively since
the start of the year until mid-May), speculative capital
inflows seem to have decelerated in response to the
lowering of the policy rate. However credit growth has
remained strong, at around 36% on an annual basis,
notwithstanding the differentiation of the required reserve
requirements across maturities and the increase of the
reserve requirements. In its meeting on the 21st of April
2011 the Central Bank raised the required reserve
requirements for the fifth time since November 2010. As
commercial bank financing costs rise it is expected that
credit expansion will eventually curb.

GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 23
10. ECONOMIC DATA GREECE
Yearly Data 2006 2007 2008 2009 2010 2011f 2012f

Real GDP Growth 4,5 4,5 1,1 -2,1 -4,3 -2,5 1,2
Gross Fixed Total Investments (including stocks) 8,1 5,5 -7,7 -11,1 -16,5 -8,6 1,9
- Residential Investment 29,1 -8,6 -29,1 -21,7 -18,6 -17,0 3,0
- Equipment 14,2 22,3 6,6 -11,8 -23,5 -7,5 1,0
Unemployment (percent) 8,9 8,3 7,7 9,5 12,6 15,2 15,0
Employment 1,9 1,7 0,2 -0,7 -2,7 -3,0 0,1
Consumer Price Index (year average) 3,2 3,0 4,2 1,3 4,7 3,5 1,8
Unit Labor Cost (1995=100) 2,3 3,6 6,2 5,0 -3,0 -3,0 -2,0
Credit Expansion (Private Sector) 21,1 21,5 15,9 4,1 -0,1 -3,0 1,0
Government Deficit (as % of GDP) -5,7 -6,4 -9,8 -15,4 -10,5 -7,5 -6,5
Current Account (as % of GDP) -9,6 -12,4 -13,0 -10,1 -9,6 -8,0 -6,0
Source: Alpha Bank Research, IMF

2009 2010 2010 2010 2010 2010 2011

Quarterly Data
I II III IV available period
Economic Activity (period average)
Retail Sales Volume -9,3 5,7 -0,2 -3,9 -15,1 -6,8 -12,2(Jan-Feb)
Construction Activity -26,5 -20,6 -24,3 -25,0 -19,9 -23,7 -72,9(Jan)
Industrial Production (Manufacturing) -11,2 -4,3 -4,2 -5,0 -2,8 -4,8 -7,0 (Jan-Mar)
PMI (manufacturing) 45,3 44,6 42,6 44,3 43,5 43,8 47,9 (Apr)
Economic Sentiment Indicator 70,6 78,8 72,3 74,2 74,1 75,1 74,2 (Apr)
Index of Business Expectations in Manufacturing 72,1 74,6 76,9 77,0 74,8 75,8 78,3 (Apr)
Consumer Sentiment Index -45,7 -52 -65 -65 -72 -64 -70 (Apr)
Credit Expansion (end of period)
Private Sector 4,1 3,5 2,6 1,2 -0,2 -0,1 -0,4 (Mar)
Consumer Credit 2,0 1,0 0,0 -2,1 -4,2 -4,2 -4,6 (Mar)
Housing 3,7 3,5 2,3 1,0 -0,4 -0,4 -1,4 (Mar)
Business 5,1 4,2 3,7 2,3 1,0 0,9 1,1 (Mar)
Tourism 7,8 8,2 3,9 4,5 2,9 2,9 0,2 (Mar)
Prices (end of period)
Consumer Price Index 1,2 3,0 5,2 5,5 5,1 4,7 3,9 (Apr)
Core Inflation 2,4 1,7 3,3 3,7 3,3 3,0 2,1 (Apr)
Interest Rates (period average)
Savings 0,56 0,38 0,37 0,39 0,44 0,45 0,38 (Feb)
Short-term Business Loans 6,07 5,84 6,12 6,39 6,64 6,79 6,90 (Feb)
Consumer Loans (up to 1 year) 11,53 11,13 11,14 12,12 12,17 12,33 12,44 (Feb)
Housing Loans (over 10 years) 4,08 3,60 3,69 3,97 4,10 4,06 4,46 (Feb)
3 month Euribor 0,70 0,63 0,77 0,85 0,94 1,11 1,39(Apr)
10 year Bond Yield 5,17 6,24 8,30 10,79 10,03 12,47 24,65 (Apr)
National Accounts
Real GDP -2,0 -0,7 -5,1 -5,7 -6,6 -4,5 -4,8(Q1)
Final Consumption -2,2 1,0 -5,0 -5,6 -8,6 -4,5
Investment -11,2 -5,0 -17,1 -7,1 -19,4 -16,5
Exports -20,1 2,2 3,2 -0,9 12,8 3,8
Imports -18,6 0,5 -8,4 -8,9 -3,2 -4,8
Balance of Payments (in mn - Cumulative)
Exports of Goods 15,3 3,5 7,8 12,2 17,1 17,1 2,6(Jan-Feb)
Imports of Goods 46,1 11,8 23,1 34,5 45,4 45,4 8,2(Jan-Feb)
Trade Balance -30,8 -8,3 -15,3 -22,3 -28,3 -28,3 -5,6(Jan-Feb)
Invisibles Balance 6,1 -1,5 0,9 5,9 6,3 6,3 1,2(Jan-Feb)
Invisibles Balance / Trade Account 19,8% 18,1% 5,9% 26,6% 22,3% 22,3% 21,0%(Jan-Feb)
Current Account -24,7 -9,8 -14,4 -16,3 -22,0 -22,0 -4,4(Jan-Feb)
Direct Investments 1,1 0,9 0,9 0,4 0,7 0,7 -0,14(Jan-Feb)
Portfolio Investments 27,1 4,9 -5,0 -18,3 -20,9 -20,9 -0,13(Jan-Feb)
Athens Stock Exchange (end of period)
Composite Index 2.196,0 2.067,0 1.434,0 1.471,0 1.414,0 1.413,9 1.434,7 (Apr)
% change 22,9 22,7 -35,1 -44,7 -35,6 -35,6 -23,3 (Apr)
Market Capitalization ASE (% of GDP) 34,6 32,8 23,4 24,4 23,3 23,3 24,8 (Apr)
Source: Hellenic Statisticsl Authority (EL.STAT.) and Alpha Bank Research

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ECONOMIC AND FINANCIAL OUTLOOK PAGE 24
11. ECONOMIC DATA SOUTHEASTERN EUROPE
Romania 2007 2008 2009 2010 2011 (f) 2012 (f) Bulgaria 2007 2008 2009 2010 2011 (f) 2012 (f)
Real Economy Real Economy
Real GDP 6,3 7,4 -7,1 -1,3 1,9 3,4 Real GDP 6,4 6,2 -5,5 0,2 2,7 4,0
Private Consumption 11,9 9,0 -10,2 -1,7 0,8 3,0 Private Consumption 9,0 3,4 -7,6 -1,2 2,0 3,8
Government Consumption -0,1 7,2 1,6 -3,6 -1,5 1,5 Government Consumption 0,3 -1,0 -6,5 -1,0 -0,5 0,5
Gross Fixed Investment 30,3 15,6 -25,2 -13,1 4,0 6,0 Gross Fixed Investment 11,8 21,9 -17,6 -16,5 4,5 6,0
Exports (Goods & Services) 7,8 8,3 -5,3 13,1 8,5 7,5 Exports (Goods & Services) 6,1 3,0 -11,2 16,2 7,0 7,5
Imports (Goods & Services) 27,9 7,9 -20,9 11,6 6,7 8,2 Imports (Goods & Services) 9,6 4,2 -21,0 4,5 6,7 7,0
Prices Prices
HICP Inflation (Avg) 4,9 7,9 5,6 6,1 6,7 4,0 HICP Inflation (Avg) 7,6 12,0 2,5 3,0 4,2 4,5
General Government (%GDP) General Government (%GDP)
Overall Balance -3,1 -4,8 -7,3 -6,5 -4,4 -3,0 Overall Balance 3,5 3,0 -0,8 -3,9 -2,5 -1,3
Balance of Payments (% GDP) Balance of Payments (% GDP)
Current Account Balance -13,4 -11,6 -4,2 -4,2 -4,6 -5,1 Current Account Balance -26,8 -24,0 -9,9 -0,8 -1,5 -2,0

Cyprus 2007 2008 2009 2010 2011 (f) 2012 (f) Serbia 2007 2008 2009 2010 2011 (f) 2012 (f)
Real Economy Real Economy
Real GDP 5,1 3,6 -1,7 1,0 1,8 2,5 Real GDP 6,9 5,5 -3,5 1,8 3,0 4,1
Private Consumption 9,4 7,1 -2,9 0,8 1,5 2,5 Private Consumption 3,1 7,9 -2,5 -1,8 0,2 3,0
Government Consumption 0,3 6,2 5,8 0,5 3,0 2,0 Government Consumption 18,2 1,6 -5,1 -2,4 -1,5 0,7
Gross Fixed Investment 13,4 6,0 -9,1 -7,9 1,4 2,0 Gross Fixed Investment 25,6 1,9 -9,3 -0,1 1,6 5,0
Exports (Goods & Services) 6,1 -0,3 -11,3 0,6 3,9 4,1 Exports (Goods & Services) 17,2 8,9 -12,4 19,1 17,0 15,0
Imports (Goods & Services) 13,3 8,1 -19,3 3,1 3,0 3,4 Imports (Goods & Services) 26,0 9,3 -21,8 4,1 6,2 7,4
Prices Prices
HICP Inflation (Avg) 2,2 4,4 0,2 2,6 3,8 2,8 Consumer Price Inflation (Avg) 6,5 12,4 8,1 6,2 9,9 4,1
General Government (%GDP) General Government (%GDP)
Overall Balance 3,4 0,9 -6,0 -4,9 -4,1 -4,0 Overall Balance -1,9 -2,6 -4,3 -4,5 -4,1 -3,1
Balance of Payments (% GDP) Balance of Payments (% GDP)
Current Account Balance -11,7 -17,5 -8,3 -7,2 -6,7 -6,5 Current Account Balance -15,9 -20,9 -6,9 -7,1 -7,4 -6,6

Albania 2007 2008 2009 2010 2011 (f) 2012 (f) FYROM 2007 2008 2009 2010 2011 (f) 2012 (f)
Real Economy Real Economy
Real GDP 5,3 8,3 3,9 3,9 4,0 4,2 Real GDP 6,1 5,0 -0,9 0,7 3,0 3,5
Private Consumption - - - Private Consumption 7,5 7,4 -3,9 1,1 2,4 3,7
Government Consumption - - - - - - Government Consumption -0,3 10,6 -6,4 -3,0 1,0 1,2
Gross Fixed Investment - - - - - - Gross Fixed Investment 17,1 5,4 0,9 -7,5 9,0 8,0
Exports (Goods & Services) - - - - - - Exports (Goods & Services) 11,8 -6,3 -10,7 22,7 7,0 8,0
Imports (Goods & Services) - - - - - - Imports (Goods & Services) 16,1 0,8 -11,1 10,7 7,5 8,2
Prices Prices
CPI Inflation (Avg) 2,9 3,4 2,3 3,6 4,5 3,5 HICP Inflation (Avg) 2,3 8,3 -0,8 1,6 4,3 3,8
General Government (%GDP) General Government (%GDP)
Overall Balance -3,9 -5,5 -7,1 -3,0 -3,5 -3,0 Overall Balance 0,6 -0,9 -2,7 -2,5 -2,5 -2,2
Balance of Payments (% GDP) Balance of Payments (% GDP)
Current Account Balance -10,3 -15,3 -15,5 -11,9 -11,2 -9,8 Current Account Balance -7,1 -12,8 -6,7 -2,8 -3,1 -3,7

Ukraine 2007 2008 2009 2010 2011 (f) 2012 (f) Turkey 2007 2008 2009 2010 2011 (f) 2012 (f)
Real Economy Real Economy
Real GDP 7,9 2,4 -14,8 4,3 4,5 4,9 Real GDP 4,7 0,7 -4,8 8,9 4,5 5,0
Private Consumption 17,0 12,8 -14,9 7,0 4,1 4,6 Private Consumption 5,5 -0,3 -2,3 6,6 6,1 6,4
Government Consumption 1,8 1,1 -2,4 3,3 1,4 1,6 Government Consumption 6,5 1,7 7,8 2,1 4,0 3,5
Gross Fixed Investment 6,6 -1,2 -50,5 3,2 11,0 12,0 Gross Fixed Investment 3,1 -6,2 -19,0 44,0 12,0 10,0
Exports (Goods & Services) 2,8 5,7 -22,0 4,5 4,4 4,3 Exports (Goods & Services) 7,3 2,7 -5,0 2,6 7,2 7,5
Imports (Goods & Services) 23,9 17,0 -38,9 11,1 11,3 6,1 Imports (Goods & Services) 10,7 -4,1 -14,3 14,7 12,5 13,2
Prices Prices
CPI Inflation (Avg) 12,8 25,2 15,9 9,9 10,6 9,3 HICP Inflation (Avg) 8,8 10,4 6,3 8,6 6,5 5,5
General Government (%GDP) General Government (%GDP)
Overall Balance -2,0 -3,2 -6,2 -5,1 -3,1 -2,5 Overall Balance -1,6 -2,2 -5,5 -3,6 -2,8 -2,5
Balance of Payments (% GDP) Balance of Payments (% GDP)
Current Account Balance -3,7 -7,1 -1,5 -2,0 -2,4 -2,6 Current Account Balance -5,9 -5,7 -2,3 -6,7 -8,0 -8,8

Source: Central Banks, National Statistical Institutes, IMF, Economist Intelligence Unit, Eurostat, World Bank, Alpha Bank Economic Research
Note: Data for a 2010 are preliminary
(f): Forecast Alpha Bank Economic Research

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ECONOMIC AND FINANCIAL OUTLOOK PAGE 25