Greece and Southeastern Europe Economic & Financial Outlook: Executive Summary

Greece and Southeastern Europe
Economic Research Division

March 2010 - No 73
Economic & Financial Outlook
Executive Summary
1. GREECE Current forecasts are for a general government deficit of 5.7% of
GDP for 2010, following the sharp rise in expenditure and fall in
Following the fiscal derailment in 2009, with the general
revenue which pushed the deficit up to an estimated 6.1% of GDP
government deficit and debt reaching 12.7% and 113.4% of GDP,
in 2009, from a surplus of 0.9% of GDP in 2008. The 2010 deficit
Greek economy has entered a period of unprecedented crisis
reflects the expected weak macroeconomic situation in the following
engulfing Greek government bond market as well as undermining
year and a prudent assessment of the effectiveness of measures to
economic sentiment and developments in the real economy.
be applied on the revenue side.
In response to the crisis, the government adopted a robust stability 5. SERBIA
program to bring the deficit to below 3% of GDP and set the debt-
to-GDP ratio on a declining trend by 2012. The backbone of the GDP growth is forecast to increase by 1.5% in 2010, following the
program rests on long overdue reforms aiming at tackling looming estimated -3.0% decline in 2009. Thus far GDP growth has
social security deficits, ending persistent tax evasion and controlling contracted by -2.3% and -4.6% y/y in Q3 and Q2 2009 on the back
employment and wage growth in the public sector. of declining industrial and construction activity. With industrial
With Greece suffering from a huge credibility deficit as well, and the production having declined by -15.8% y/y during Jan-Nov, a further
markets remaining sceptical, the European Council on February 11, decline in GDP growth is estimated in Q4 2009.
2010 offered some form of an implicit guarantee on Greek debt The 2010 budget projects a consolidated fiscal deficit of 4% of GDP
while at the same time exerting maximum pressure on Greece to in 2010, in line with Serbias stand-by arrangement with the IMF.
strengthen its stability programme via additional measures, and The budget includes measures such as a freeze on public sector
take timely action on implementation. salaries; a cut in the public administration workforce, a reduction in
Under the circumstances, GDP will decline further in 2010 by about the number of capital spending projects as well as limiting subsides.
-1% to -2.5%. The outlook, however, will be steadily improving as In addition, the IMF extended the standby arrangement with Serbia
concrete legislation effecting reforms comes on stream and markets through to the end of 2011, ensuring access to the two remaining
become increasingly convinced that fiscal consolidation is tranches under the 2.94 billion stand-by loan.
adequately anchored. We expect business and consumer 6. ALBANIA
confidence to be gradually restored in the second half of 2010 and
a recovery to set in, with Greece returning to positive growth in GDP growth is expected to reach around 2.2% in 2010 from the
2011. relatively strong 4.0% growth estimated in 2009. GDP growth fell to
4.1% y/y in Q3 from 6.0% y/y in Q1. Even though growth
2. ROMANIA decelerated in 2009, Albania has outperformed the region as a
GDP growth is forecast to recover to 1.5% in 2010, following an whole last year and is expected do so again in 2010.
estimated decline of -7.2% in 2009. During Jan-Sep 2009, GDP However, despite the modest improvement in the trade account in
growth contracted by -7.4% y/y with the current flash estimate 2009, the current account deficit increased by 20% y/y to about
pointing to a decline of -6.6% y/y in Q4 2009. 12.1% of GDP, due to the decline in emigrant remittances.
The current account deficit declined by -69% y/y to around -4.3% of 7. FORMER YUGOSLAV REPUBLIC OF MACEDONIA
forecast GDP in 2009, after reaching -13.6% and -12.3% of GDP in
2007 and 2008 respectively. Economic activity is expected to recover in 2010, with GDP growth
of 2.0%, following a fall of GDP by an estimated -1.0% in 2009.
The general government deficit reached 7.2% of GDP in 2009, in GDP fell by -1.8% and -1.4% y/y in Q3 and Q2 2009 respectively.
line with the conditions set by the IMF, which approved an
additional trance of $ 3.32 billion from the IMF loan. With CDS The current account deficit fell to 9.5% of GDP in 2009 and is
spreads having stabilised and given the relatively favourable expected to fall further to 8.2% of GDP in 2010, following a near
conditions in the financial markets, the Romanian government is set fivefold increase to 13.4% of GDP in 2008.
to launch a Eurobond issue of 1 billion. 8. UKRAINE
3. BULGARIA GDP growth is expected to recover to between 3%-4% in 2010,
Economic activity is forecast to return to positive territory in H2 following the forecast -14.5% decline in 2009. Thus far, GDP growth
2010 with GDP growth of 0.3% in 2010. For 2009, GDP growth is has declined by -15.9% y/y in Q3 and -17.8% y/y in Q2 2009
estimated to have declined by -5.1% y/y, with Q4 flash estimate following the -20.3% decline in Q1 2009.
pointing to a GDP fall of -6.2% y/y, up from the -5.4% y/y decline in
Q3. Deepening recession implied a surge to Bulgarias jobless rate
By end-December 2009, 12 month average inflation had eased to
15.9% y/y from 25.2% in 2008. For 2010, disinflation is forecast to
to 9,9% in January 2010, from 6.5% in January 2009.
make only modest gains, with inflation easing to around 11% for the
The current account deficit is forecast to decline to 6.7% of GDP in year as a whole.
2010, following its decline by 66% y/y to 8.6% of GDP in 2009,
from the 22.5% of GDP in 2008. Driving this correction was the
9. TURKEY
deficit on the trade balance which declined by -99% y/y. Economic activity is forecast to recover in 2010 with GDP growth of
3.7%. For 2009, stronger Q4 growth has raised the full-year growth
4. CYPRUS estimate to -5.8% y/y from the previous -6.5% y/y. The recent
Economic activity is expected to remain subdued in 2010 with GDP decline in economic activity was due to constrained domestic
growth of 0.5% due to weak global demand and depressed private lending, limited foreign capital inflows, falling real disposable
consumption and investment. The current flash estimate of -2.7% income and weak external demand.
y/y GDP growth in Q4 2009, implies that the fall of GDP in 2009 as
a whole was as high as -1.5%. Cyprus slipped into recession since The current account deficit is estimated to -2.1% of GDP in 2009
Q1 2009, as tourist arrivals and earnings slumped by -10.9% and due to weak import demand and lower commodity prices and is
by -17.0% respectively in 2009. expected to remain at the level of -2.8% of GDP in 2010.
1. GREECE with a new slate. This resulted to the unfavourable
Table 1. Basic Conjunctural Indicators projections of the European Commission concerning
(% change from previous period) fiscal developments in Greece in 2010-2011 and the
2006 2007 2008 2009-2010
implied downgrades of the Greek State by the Rating
available period
Retail Sales Volume 8,0% 2,3% -1,4% -10,2% Jan-Nov. Agencies, leading to a an sudden loss of credibility, which
Automobile sales 0,5% 4,3% -7,0% -17,4% Jan-Dec threw Greece at the mercy of the markets.
Tax on Mobile telephony 11,8% 114,2% 5,3% 0,0% Jan-Sept
VAT Receipts 12,0% 9,8% 8,4% -10,0% Jan-Oct
Consumption Tax on Fuels 5,4% 10,0% 29,9% 22,7% Jan-Oct 10y Government Bond CDS Spreads
Private Consumption 5,3% 3,3% 2,3% -1,8% 2009 450
Government Consumption -0,1% 8,4% 0,6% 10,5% 2009
400
Building activity (Permits) -19,5% -5,0% -17,1% -28,1% Jan-Nov.
Greece
Cement Production 3,1% -9,2% -3,1% -22,4% Jan-Nov. 350
Germany
Public Investment 8,9% 7,6% 9,3% -2,8% Jan-Dec
300
Fixed Investment 9,8% 4,6% -7,4% -20,2% 2009
Change in Stocks and Stat. D. 87,7% 1785,2% 147,3% -165,0% 2009 250
Unemployment 8,9% 8,3% 7,7% 10,6% Nov-09
200
Industrial Production 0,9% 2,3% -4,0% -11,2% Jan-Dec.
Economic Sentiment 103,0 108,4 88,9 76,1 Jan-10 150
-Industry 101,5 102,8 91,9 75,8 Jan-10
100
-Consumer Confidence -33 -28 -46,0 -47,2 Jan-10
PMI (Manufacturing) 52,4 53,7 50,4 46,8 Jan-10 50
Tourism Arrivals (airports) 8,4% 8,5% -1,4% -6,7% Jan-Sept
0
Tourism Receipts (BoP) 5,9% -0,3% 3,0% -10,9% Jan-Dec.
2008 2009 2010
Exports goods & services 5,3% 5,8% 4,0% -16,5% 2009
Imports goods & services 9,0% 7,1% 0,2% -24,7% 2009
GDP growth 4,5% 4,5% 2,0% -2,0% 2009
Current Account (% of GDP) -9,6 -12,4 -12,7 -10,3 2009
The Greek government responded with the
Note: Growth rates are calculated on a cumulative basis announcement of a comprehensive adjustment program,
the Hellenic Stability and Growth Program 2010-2013
FISCAL CONSOLIDATION PROSPECTS: In the last months, (HSGP), which, however, despite endorsement by the
Greece has experienced an abrupt change of fortunes. European Commission, did not go far enough to appease
The derailment of Greek public finances in 2009 was the markets. With unrelenting market pressure continuing,
primarily the result of mismanagement as the economy the Greek Government came out on February 9, 2010,
went in reverse. In view of the deteriorating growth with a barrage of detailed measures giving content to the
environment, and with two electoral contests weighing in, reforms sketched in the HSGP. On February 11, 2010,
a quasi-stimulus plan was put into effect, notwithstanding the European Council took a decision effectively offering
the already high fiscal imbalances in 2008. With the tax an implicit guarantee that Greece will not be allowed to be
authorities, however, becoming increasingly dysfunctional overwhelmed by the markets, stopping, however, short of
and the government succumbing to pressure groups a more explicit backing arrangement.
demands for income support, the stage was set for
Table 1. The evolution of fiscal adjustment in 2010-2013
disaster. At the same time, sporadic efforts (in the form of 2009 2010 2011 2012 2013
additional tax measures) to mitigate adverse budgetary GDP (annual % change) -1,2 -0,3 1,5 1,9 2,5
General Government Deficit (% of GDP) 12,7 8,7 5,6 2,8 2,0
developments in H2 2009 were thwarted by economic General Government Debt (% of GDP) 113,4 120,4 120,3 117,5 113,2
policy-making paralysis. Source: HSGP 2010-2013
Following the election of the new government in October At the same time, pressures have been intensified for
2009, the deterioration in public finances assumed a new Greece to implement swiftly its HSPG and to come
dimension with the announcement that the deficit was not forward with additional measures, if need be, to
of the order of 8.5% of GDP, as most analysts were safeguard the achievement of its fiscal consolidation
predicting at the time, but rather 12.7% of GDP. This was targets for 2010, 2011 and 2013. The ECOFIN in
the result of the new governments marking to market all February 16, 2010, acting under Article 126 (9), has
obligations arising from the past and likely to burden imposed a deadline of March 16, 2010 for Greece
future budgets so as to clear the kitchen sink and start presenting a timetable for implementing budgetary target
measures for 2010, and another by 15 May, 2010
Contents outlining the policy measures needed to bring the deficit
1. Greece .......................................................................... 1 to below 3% of GDP by 2012, while quarterly reports be
2. Romania...................................................................... 12 submitted thereafter regarding progress on
3. Bulgaria ....................................................................... 14
implementation. Despite all of the above, currently, the
4. Cyprus......................................................................... 15
5. Serbia.......................................................................... 16 10-year Greek government bond spread over German
6. Albania ........................................................................ 18 bonds still stands at about 317 basis points, having come
7. Former Yugoslav Republic of Macedonia.................... 19 down from its peak lever of around 400 basis points at
8. Ukraine........................................................................ 20 end-January 2010.
9. Turkey ......................................................................... 21
10. Economic Data Greece .......................................... 23 The low credibility of economic policy making in Greece is
11. Economic Data Southeastern Europe .................... 24 the key stumbling block in convincing the markets and all
other parties involved about the adequacy of the HSPG.
The result is ever increasing demands for additional may prevent recovery of their economies from the deep
measures, concrete implementation timetables and recession of 2009, or it may throw these economies into
detailed specification of all major structural reforms an even deeper recession.
included in the HSPG. The loss of credibility is so severe
that people make judgements without even considering Dia gra m 1. Com pa ra tive e volution of ge ne ta l gove rnme nt
deficit in Gre ec e a nd se le cte d countrie s.
the concerted effort now underway to tackle the key
drivers of deficit generation in Greece, i.e. the rapid
employment and wage growth in the public sector -2,8
including the government, the state-controlled entities and
local authorities, the worsening tax evasion situation and, -5,6
the increasing pension fund deficits caused not only by -7,7

-8,5
-7,4
-8,2
the aging of the population but mainly the expansion of -8,7
-9,6 -9,4 -9 ,4
-10 ,7
benefits without the requisite savings being in place. -11,6 -11,2
-12,2
-1 2,7 -12,6 -12,5 -12,2
Greek Bond Yield vs. German Bund Yield -13 ,3 2009 20 10
450 2011 20 12
400 Greece United Spain Ireland USA Japan

10yr Spread Kingdom
350
300
Greece, on the other hand, will be in a better position to
250 bring its general government deficit down, even below
200 the 2.8% of GDP by 2012, because its deficit is mainly
150 due to the overexpansion and extensive mismanagement
100
of the public sector itself, especially in the last two years.
What is needed is better governance and management of
50
public finances, the reversal of the excesses of the 2000s
0
Jan 2009 Jul 2009 Jan 2010
in increasing public sector employment and wages, the
gradual withdrawal of the Greek state from activities that
Greece is in a much better position to proceed with are better performed by the private sector, the
fiscal adjustment than markets currently assume. rationalization of management of public sector
Greece is not the only country facing excessive fiscal organizations and businesses with a substantial increase
imbalances in the last two years, as is shown in Diagram of cost recovery in these entities and, finally, the long
3, which is based on OECD estimates and projections overdue reform of the overgenerous Greek social security
and the projections of the HSGP. In fact, if we assume system, which is the main source of Greeces fiscal
that Greece will come near to achieve the targets of the problems. More specifically:
HSGP in 2011 and 2012, then Greece will have one of Both public sector employment and wages can be
the lowest fiscal deficits in the OECD area in this period. contained in the following years, in combination with a
Moreover, while Greece has indeed a higher debt/GDP substantial increase in productivity in this sector. Related
ratio (expected to reach 120% of GDP in 2011), measures adopted in the HSGP are:
comparing with the other countries presented in Diagram
3, it is not clear whether it will continue to be the leader in a) A reduction in civil service employment with the freeze
that area in the following years. According to HSGP the in public sector hiring in 2010 and a rule for hiring only
Greek debt/GDP ratio will be set on a falling trend from one new employee for every five that will retire in the
2012 onwards and it will reach 113.5% in 2013. On the following years.
other hand, in the following years and for the whole b) The rationalization, merging, or abolition of numerous
decade of 2010 in most of the other indebted countries public sector organizations and entities and the closing
the debt/GDP ratio is set to increase and to exceed 100% down of tourism promotion offices abroad.
of GDP in a few years from now.
c) Moreover, with the new reorganization scheme of local
Moreover, Greece shares with other OECD countries government organizations (of which the relevant
(Japan, USA, UK, Ireland, Spain, Portugal, and others) legislative bill has already been published), the number of
the prospect of a substantial fiscal consolidation in the municipalities in the country are set to be reduced to 370
from 1.060 currently.
2010s: For those countries, however, the recent
ballooning of their fiscal imbalances was not due to the d) An absolute freezing of basic salaries in the public
mismanagement of their public sectors, but mainly the sector, while at the same time reducing income
result of their effort to accommodate the huge negative allowances by 10% (resulting in 1% - 5.5% total income
effects of the international economic crisis in their cuts). Moreover, overtime work (which currently
economies and in particular in their financial system. constitutes a big part of public sector wage payments) will
be reduced by 30% and the same will apply for
Therefore, in these countries fiscal consolidation is risky
compensation for travel and out-of-office work. Finally all
because a premature withdrawal of fiscal stimulus in them currently untaxed or partially taxed income allowances
GREECE AND SOUTHEASTERN EUROPE

ECONOMIC AND FINANCIAL OUTLOOK PAGE 3
will now be included into the taxable income statement of expenditures (which have been increasing at more
all state employees. than 30% per year in the 2000s). Therfore, collected
e) Top pay for government appointees to managerial social security contributions are projected to be
positions of state organizations is now set to a maximum boosted by 2.5 billion in 2011 and by 4.0 billion in
of 6000 per month with no bonuses. Moreover, a 50% 2012. To this end the HSGP has also included a 1.0%
cut is decided for compensation of all members of board increase of contributions to the Farmers Social
of directors of these organizations. Insurance Fund (OGA).
The above policies are expected to imply a negative Moreover, has already announced its legislative
growth (-1.0%) of the central government wages and initiatives for the long overdue fundamental reform of
pensions bill in 2010, compared with a 2.8% increase of Greeces unsustainable pension system, the main target
this bill assumed in the budget of 2010 and an increase of of which is: a) to effectively contain the rate of increase of
11.5% in 2009. the transfers from the budget to the various pension funds
of the country, and b) to make pension funds benefits
For the years after 2010, compensation of employees compatible with businesss and workers contributions. To
in the general government is expected to register again that end the main measures included in the proposed
negative growth of -0.5% in 2011 and 1.0% growth in reform of the social security system are as follows:
2012 and 2013. Therefore, it is expected to fall to 11.3%
a) Measures to increase the average effective retirement
of GDP in 2013, from 12.7% of GDP in 2009. This
age limit from 61 today to 63 by 2015. This will be
outcome will be the result of the effective hiring freeze implemented through the abolition of all early retirement
which will be applicable not only in 2010 but in the provisions existing today in many funds, the equalization
following years as well. With this policy it is possible that of retirement age in the public sector between men and
employment in the general government will be reduced by women from 2013 onwards (applying the decision of the
more than 5% in the following 3-years, while the European Court of Justice regarding the equalization
rationalization of operations of various government of the retirement ages for men and women), the
services may further boost wage cost savings in the gradual raising the retirement age from 58 to 63 for
broader public sector. Moreover, wage policy will continue people with 35 years of employment entitled to full
to be restrictive in the broader public sector, as there is pension, the deferment of pension payments to normal
real need for abolishing the sizable wage advantages retirement age if the pensioner is below 55 years old, the
reduction of pensions received for as long as pensioners
which this sector enjoys at the expense of the private
continue to work, provision of incentives to stay on the job
sector. Needless to say that all the above will be growth post-retirement age.
boosting policies for the economy as a whole.
b) Measures to make pension benefits to be determined
In addition to the above intermediate government by contributions. This will be implemented through
consumption which reached 6.0% of GDP in 2009, from instituting a basic pension for all at age 65 of about 360
4.9% of GDP in 2006, registering an increase of 21.8% in (poverty level) from 2018, which will be supplemented
2009, is expected to fall by -10.6% in 2010 and to with a fully-funded pension based on life time
continue to a negative trend in the following years falling contributions. For the transition period, the reform
to the 3.4% of GDP in 2012 and 2013. This will be amounts to granting reduced benefits to people entitled to
achieved through the rationalization of public sector partial pensions.
provisions and also though the substantial increase of the
degree of cost recovery in public sector services and Overall, the successful implementation of the above
entities. This will be the way to apply effective budget measures will affect immediately the rate of growth of
constraints to the operation of the above entities. contributions to the funds (because from now on
benefits will be determined by contributions), taking
The contribution of the budget to the pension system also into account the fact that the process for the
(including civil servants pensions) rose from 8.9 legalization of so far unregistered immigrants is now
billion (4.5% of GDP) in 2005 to 15.8 billion (6.6% of speeded up. Moreover, pensions increases in the
GDP) in 2009. A part of the substantial increase of this following years will be near zero (possibly excluding
contribution in 2009 was due to the surge of social low income pensions). Therefore, the transfers from the
security contribution evasion, which occurred in this budget to the pension system are projected to fall from
year and implied a substantial increase of lost revenue 6.6% of GDP in 2009 to 6.0% in 2010 and to 5.5% of
for the funds to 8 billion at the end of 2009. An GDP in 2011 and 2012 and in the following years.
additional part constituted advance payment for the
needs of pension funds in 2010. Therefore, the Also, planned health care spending cuts, to be
relevant payment included in the 2010 budget is 14.5 implemented through a fundamental reform of the
billion (6.0% of GDP). This item is expected to be countrys health care system, have been set at 0.9
contained further in the following years through the billion in 2011 and at 1.2 billion in 2012.
more permanent crackdown on contribution evasion Direct taxes are estimated to be less than 19% of
and the essential containment of health care GDP in 2009 in Greece, which is much lower than

in the other Eurozone countries (26% of GDP). This incomes will be taxed with the same tax scale with the
low contribution of personal income taxes is largely exception of interest income on deposits and bonds.
responsible for the low level of net current tax revenue in Undistributed corporate profits will be taxed at 24% (going
Greece relative to the other European countries. If the down to 20% over time), while dividends will be taxed
Greek authorities implement successfully the policies through a 40% withholding tax and finally the application
(those included in the HSGP and specified on 10 of the personal income tax scale.
February 2010 to be included in tax bill) aiming at A net capital gains tax on short-term stock exchange
appropriately broadening Greeces tax base concerning transactions will be introduced.
direct taxes, then they can increase tax revenues by as
much as 15 billion (6,2% of GDP), just by reaching the A window for the repatriation of funds deposited abroad
is opened applying a mere 5.0% tax rate, while if funds
European average direct tax revenues as a percent of
residing abroad are declared but not repatriated an 8.0%
GDP. This is an estimate that does not account for
tax rate will be applied.
Greeces sizable parallel economy (estimated at about
35% of GDP in 2009), which lowers considerably current Calibrating property taxes from a system of 0.1%, with
taxation trends and estimations. It is notable that VAT first 200,000 tax-free, to a system of 0.1% - 1% with first
revenues fell by -10% in 2009, compared with a -0.8% 400,000 tax-free, with annual readjustment of objective
real estate prices used for tax purposes
growth of nominal GDP. In fact, more than 1.5 billion
VAT revenues in 2009 were lost through outright tax Raising the tax rate on offshore real estate companies
evasion. Most of these revenues should be recovered in (tax heavens for big properties) from 3% to 10%.
2010 and in the following years. Extending VAT to activities not currently covered such as
Table 3. Impact of 2010 revenue measures lawyers and notaries
Permanent Measures Million
Unique tax scale and elimination of tax exemptions 1.100 Moreover, measures aiming at a substantial
Property taxes 400 improvement of tax assessment practices are:
Higher exise tax on cigaretes and alcohol 710
Higher tax on mobile phones and petrol (carry over from 2009) 400 Assessing taxes for self-employed on the basis of ledgers
Higher exise tax on gaziline and petrol 950
and not ad hoc imputation methods
Total 3.560
One-off measurs Million Introducing a point system for tax audits on the basis of
Special levy on profitable firms 870
Special levy on high value real estate 180
transparent and objective criteria as to whom and when to
Revenue from liquidity scheme for banks 280 audit to minimize evasion risk
Total 1.330
Revenues from reducing tax evation 1.000 Introducing a self-assessment income tax system for
Public Investment Budget revenues 1.700 small companies on the basis of preset criteria for
Grand total 7.590 participating in the system
Grand total % of GDP 3,16%
Source: Update for the Stability and Growth Program 2010-2013, January 2010 Obliging business to effect all B2B transactions (above a
certain limit per transaction) via bank transfers
Table 4. Impact of 2010 general government
expenditure reducing measures Obliging businesses to effect all B2B and B2C
Permanent Measures Million transactions above 1,500 only via credit cards or non-
10% reduction on salary allowances with 0.0% wage growth 650 transferable checks and not cash, so as to improve
Recruitment freeze in 2010 and reduction in overtime 225
Reduction in short term contracts 50
tracing of transactions
Reduction in operating costs 360
Reduction in pension funds sabsidy 540
Offering tax amnesty for telling on tax evaders, tax
Hospital debt setlement in 2009 1.500 officers committing crimes, etc.
Defence equipment expenditure 457
Total 3.782 The Greek government absorbed only 2.0 billion
Total % of GDP 1,57% from EU structural funds in 2009, compared with
Total fall of the Gen. Gov. Deficit 4,74% planned revenues of 3.7 billion. This is one of the
Source: Update for the Stability and Growth Program 2010-2013, January 2010
main reasons which can explain the negative GDP
The principal reforms in the area of tax policy included growth in 2009. The failure to absorb available
in the recently adopted tax bill are as follows: community funds of more than 1.7 billion in 2009
implied a fall of fixed investment in Greece by at least
Measures to expand the tax base:
4.0 billion (-1.75% of GDP). Also, it implied an increase of
The tax-free threshold (the first 12,000 earned) will be the general government deficit of 2009 by about 0.7% of
linked to submitting receipts on purchases of goods and GDP. In fact, Greece, has to absorb from the EU
services (in an effort to incentivise people to ask for, and structural funds an amount equal to 25 billion in the
force stores to issue, receipts). period 2010-2015, of which at least 16.0 billion will be
absorbed in the period 2010-2012. This will be one of the
Tax exemptions with those remaining subject to means-
main factors that will boost investment and GDP growth in
testing will be abolished.
the Greek economy in the following years, while at the
All special tax assessment methods for certain categories same time contributing to the reduction of general
of individuals or incomes will be abolished. Therefore, all government deficit by about 0.7% of GDP annually.

RECENT ECONOMIC DEVELOPMENTS: The negative reached the level of 81.8 in October 2009, from 75.7 in
developments in the Greek economy in 2009 were September and a low of 60.4 in March 2009, but fell back
mainly due to the dismal economic and financial to 76.1 in January 2010. Consumer sentiment had
environment that prevailed world wide in this period, in improved to the -27.1 in October 2009, from -39.4 in
which international trade (affecting in particular Greek September and -56.2 in March 2009, but fell also to -47.2
shipping) has fallen by more than -12.5%, from 4.1% in in January 2010. Moreover, the substantial improvement
2008. Also, international tourism traffic was down by in business expectations registered until October 2009
about -8.0% world wide in 2009 and has fallen by was also downgraded in the following months to
about -10% in the European Mediterranean countries. December 2009 but improved again in January 2010.
Finally, Greeces exports of goods and services have
The performance of the tourist sector in 2009 was
been negatively affected by the deep recession that
much better than expected, in a year in which Europe, the
prevailed in the main European Union countries and in
main source of international tourism for Greece,
South Eastern Europe, which constitute the main
registered a substantial negative growth. Arrivals of
trading partners for Greece. This set the stage for
foreign tourists in Greece fell by -6.7% in January-
substantial fall in private consumption, investment and
September 2009 (-8.6% in H1 2009), while revenues from
exports. However, the fall in domestic demand was
foreign tourism fell by -10.8% in January November
mainly directed towards luxury items, durable
2009 (-15.8% in January-July 2009). Overall, the tourist
consumer and investment goods and energy products,
sector (mainly hotels and restaurants) have registered a
which in Greece are to a great extent imported from
fall in turnover (in current prices) by -6.7% in Jan.-Sept.
abroad. As a result, the fall in domestic production and
2009 (Q1 2009: -20%, Q2 2009: -4.6%, Q3 2009: - 2.3%),
output was cushioned to a certain extent by the sizable
with a positive turnover growth is expected for Q4 2009.
fall in net exports.
Contrary to the better than expected performance of the
Diagram 4. GDP growth: Greece and the EU-16 tourist sector, Greeces net merchant shipping receipts
5,5 have fallen by -35.8% y/y in January November 2009
and are now expected to fall by about -35% to around
3,5 6.5 billion in 2009, from their record level of 9.9
billion in 2008. This is one of the factors which are
1,5 negatively affecting domestic consumption and
housing investment in 2009. Overall, the total shortfall
-0,5 of net merchant shipping receipts and of net
international tourism receipts is estimated to reach
-2,5 4.7 billion in 2009. However, this shortfall will be lower
Greece
than Greeces total savings from lower payments for
EU-16
-4,5 net imports of oil, which reached 4.6 billion in
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2008
2009
January November 2009.

Diagram 2. Manufacturing Production
Diagram 2. Economic sentiment 13%

80,0 0 7%
70,0 8%
-10 4%
60,0
-20 3%
50,0 0%
40,0 -30 -3% -3%
30,0 Economic Sentiment -40
Consumer Sentiment (right axis) -8%
20,0 -6%
-50 Index
10,0 6m Moving Avg
-13% -10%
0,0 -60
-09
-09
-09
-09
-09
-09
-09
-09
-09
-09
-09
-09
-18% -13%
2004 2005 2006 2007 2008 2009
In the manufacturing industry, the falling trend of

Although the substantial improvement of the world production is decelerating, to -7.0% in November-
economy and financial markets from Q3 2009 onwards December 2009, from -11.1% in October 2009, -9.8% in
had contributed to a notable improvement in Greek August 2009 and from -12.4% in June 2009. In fact, the
consumer sentiment and business expectations until fall in production is now expected to reach -7.3% in Q4
October 2009, economic sentiment relapsed again to a 2009, from -10.3% in Q3 2009 and -12.6% in H1 2009.
falling trend in NovemberDecember 2009 following the One should notice the relatively sound performance of
announcement of the 12.7% of GDP deficit by the new food - beverages and tobacco sectors, which constitute
government. Greeces Economic Sentiment Index (ESI)

26.5% of the Greek manufacturing industry (with a yearly residential construction activity as measured by
fall of production in 2009 of -3.3%, -5.8% and -2.7% the volume (m3) of building permits which registered
respectively), while, on the opposite side, sectors which negative growth of -28.1% in January- November
are substantially affected by the international economic 2009, on top of a -17.1% growth in 2008. These
crisis and by the collapse of activity in the domestic developments indicate an estimated negative growth
housing sector (e.g., basic metals, textiles, cement, of residential investment for 2009 of -22.0%, following
furniture, etc) are registering big falls in production. its substantial fall by -29.1% in 2008 and by -8.6% in
Overall the index of business sentiment in Greek industry 2007. Moreover, residential investment is now
had improved to 79.4 in October 2009 from 62.8 in expected to fall again by about -19% in 2010, with
February 2009, but fell back to 71 in December 2009. recovery seen not earlier than 2011. In fact, support of
Also, the relevant PMI index was hovering between 48 demand for residential investment from growth of
and 50 in the last months of 2009, in order to fall further mortgage lending has also weakened in resent
to 46.5 in January 2010. months, as growth of mortgage loans decelerated to
Diagram 3. Volume of Retail Sales 3.7% at end-December 2009, from 6.0% at end-June
15% 2009 and 11.5% at end-2008. Finally, the averse
13%
consequences of the substantial deterioration of
10%
Greeces fiscal position on consumption and business
8%
5% confidence is expected to further delay the eventual
3% revival of both residential investment and economic
0%
activity in this sector as well. In fact, the index of
-5% -3% business sentiment in construction reached the high
YoY % Change level of 72.4 in November 2009, from 52.8 in March
-10% 6m Moving Avg -8% 2009, but then fell also back to 68.1 in December 2009
and even lower in January 2010. The upward trend will
-15% -13%
resume in this sector as well, as soon as the market
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
becomes confident that the successful implementation
Concerning private consumption, the volume of retail of the 2010 budget is well under way and the thereat of
sales is still falling at a rate of -8.5% in November 2009, bankruptcy for the Greek economy fade away.
from -9.9% in October 2009, -10.0% in September 2009
Finally, in 2009 the Greek financial sector has
and -5.8% in August 2009. However, this volume is now
recovered from the unfavorable consequences of the
estimated to have fallen by about -8.2% yoy in Q4 2009,
world wide economic and financial crisis. In fact, the
from -8.6% yoy in Q3 2009 and 13.3% yoy in Q2 2009.
Greek banking system has been a strong pillar supporting
The further improvement in retail sales in Q4 2009 was
growth in Greece and the SEE region as a whole in the
derailed by the substantial deterioration of Greeces fiscal
last ten years. In 2009, despite the tensions in
position and the downgrading of the Greek state by rating
international financial markets and recently in the Greek
agencies, thus negatively affecting consumer sentiment.
government bonds market, banks remain fundamentally
In fact, the index of business sentiment in retail trade
sound, safe and liquid. Leverage of domestic households
had improved substantially to 99.0 in October 2009, from
and businesses is lower than that in the Eurozone, with
60.2 in March 2009, but fell back to 81.0 in December
loans to GDP at 102%, compared with 135.4% in the
2009 and even lower in January 2010.
Eurozone and above 170% in some overleveraged
The fall in the volume of retail sales is mainly due to economies. Toxic asset write-offs by Greek banks related
the substantial fall of sales of durable goods, to the global financial crisis were insignificant and their
including furniture, electrical appliances and electronics capital base remained relatively strong. Moreover, some
with a fall of -17.4% yoy in January November 2009, as banks have proceeded with substantial new rights issues
well as books-paper products and cosmetics (with an to further strengthen their core capital position.
even bigger fall of -26.0% yoy in January Nov. 2009).
Concerning recent disturbances in the Greek
Moreover, new passenger car registrations, registered a
government bonds market (GGBs), it is estimated that
fall of -17.4%, reaching 242.6 thousand in 2009, from
Greek banks hold less than 16% of the total Greek
293.8 thousand in 2008 and 315.8 thousand in 2007.
government debt, which again constitute about 8.0% of
These developments, contributed to the substantial fall
their total assets. Greek banks are primarily funded by
of imports of goods by -34.6% yoy in January
customer deposits, with a loan to deposit ratio at the end
November 2009, from an increase of 12.4% in January
of September 2009 falling to 104.7% for the banks and to
November 2008. This compares with the much lower fall
113.4% for the banking groups. However, during 2009
of exports of goods, by -18.5% yoy in same 11-month
they have used ECB funding (using as collateral
period of 2009. This also implies a sizable fall of the trade
securitized loans and government bonds), which they
deficit of -41.3%.
have used in order to finance mainly profitable liquid
A bigger than expected negative development in the first investments. The banks are very much aware of the
11-months of 2009 was the continuing falling trend of problems arising currently from the extensive

disturbances in the GGBs market, as well as from the developments in the labour market until November 2009
possibility of gradual withdrawal of extraordinary long point to an expected fall in employment of about -1.1% in
term liquidity provision from the ECB and act accordingly. 2009, with an increase in the unemployment rate to 9.5%
in 2009 from 7.6% in 2008. However, this increase in the
Concerning credit risk the banks are facing the problem of unemployment rate in 2009 was also due to the increase
increasing NPLs in an economy facing negative growth in the labour force by about 50 thousand people. Finally,
conditions and an unfavorable external economic the above estimates for the disposable income growth are
environment, to the level of 7.2% of total loans at end based on the estimates for zero growth of non-labour
September 2009, from 5.0% at end December 2008. income, positive growth of income transfers received by
the private sector, and a low or negative growth of direct
Nevertheless, bank credit growth stabilized to 4.2% on a
tax payments. Therefore, the substantial deceleration of
yearly basis in December 2009 and is expected to
growth of private consumption in 2008 and its actual fall
register gradual improvement in 2010, as the international in 2009 is mainly due to the negative impact of weak
environment improves and GGBs market disturbances consumer sentiment, which led to a substantial increase
are alleviated. Overall, the Greek banks are still well of his precautionary household savings. Assuming zero
placed to withstand any problems that may arise from the wage growth and negative disposable income growth in
GGBs market, while their liquidity and capital adequacy 2010, due to the need for fiscal adjustment and for an
position remain satisfactory. They also press for an improvement of Greeces international competitiveness,
essential rationalization of Greek state finances, in order but with an estimated improved consumer sentiment
(from Q2 2010) and a higher consumer credit growth, we
to be able again to press ahead with a more appropriate
would expect private consumption growth to be again
financing of the Greek business and household sectors.
negative by -1.5% in the current year as well.
Finally, of considerable importance is the observed Greek GDP Developments in 2008-2013
2008 2009 2010 2011 2012 2013
improvement in recent months of the growth prospects of Final Consumption 2,0% 0,4% -2,4% -1,3% 0,9% 1,5%
countries of SE Europe which imply a reduction of risks of

Private Consumption 2,3% -1,8% -1,5% -0,5% 2,0% 2,2%
Government Consumption 0,6% 10,5% -6,0% -4,5% -4,0% -2,0%
Greek banks from their expansion and operations in Investment -7,4% -20,2% -4,3% 6,9% 6,6% 8,5%
Housing -29,1% -26,0% -18,8% 7,8% 8,5% 9,5%
these countries. Other Construction

Equipment
2,2%
6,3%
-1,0%
-25,0%
5,5%
-2,0%
9,5%
5,5%
7,5% 9,5%
5,5% 7,6%
Other investment -14,6% -2,0% 2,0% 4,1% 4,5% 8,3%
GDP GROWTH DEVELOPMENTS AND PROSPECTS: Chnange in reserves and Stat. descrepances
Final domestic demand
147,3%
1,0%
-165,2%
-6,2%
-31,8%
-2,4%
-133,3% 200,0% -13,3%
1,1% 2,4% 2,6%
Uncertainties and risks concerning economic growth in Exports of goods and services 4,0% -16,5% 1,0% 4,5% 4,1% 5,1%
Imports of goods and services 0,2% -24,7% -4,8% 1,5% 2,8% 4,0%
Greece in 2010 and beyond remain high. Despite the External balance -6,7% -41,6% -21,9% -10,0% -3,0% -1,2%
substantial improvement in the international economic GDP, 2000 prices 2,0%

GDP components as % of GDP
-2,0% -1,0% 1,7% 2,6% 2,7%
environment and financial system since Q3 2009, the Final Consumption % of GDP 88,8 91,0 89,8 87,2 85,7 84,6
Private consumption % of GDP 72,8 73,0 72,6 71,1 70,7 70,3
need to substantially improve public finances implies a Gross savings % of GDP 11,2 9,0 10,2 12,8 14,3 15,4
Investment % of GDP 21,0 17,1 16,5 17,4 18,1 19,1
much lower public and private consumption growth in Exports of goods and services % of GDP 24,0 20,4 20,9 21,4 21,8 22,3
2010 and the following years, which may offset the Imports of goods and services % of GDP
External balance % of GDP
35,6
-11,6
27,4
-6,9
26,3
-5,5
26,3
-4,8
26,3
-4,6
26,6
-4,4
expected increase in investment and exports and other Chnange in reserves and Stat. descrep. % of GDP 1,8% -1,2% -0,8% 0,3% 0,8% 0,7%
Contributions to GDP growth
improvements elsewhere. As a result, GDP growth in Net exports 0,85 4,83 1,52 0,54 0,14 0,06
2010 is expected to be negative at -1.0%, following a - Private consumption % of GDP

Government consumption
1,67
0,09
-1,31
1,68
-1,10
-1,08
-0,36
-0,77
1,42
-0,64
1,55
-0,30
2.0% growth in 2009, though under certain circumstances Investment
Housing investment
-1,71
-2,35
-4,24
-1,45
-0,74
-0,79
1,14
0,27
1,15
0,31
1,54
0,37
of delayed implementation of the Stability Program, the Chnange in reserves and Stat. descrepances 1,11 -3,01 0,39 1,11 0,55 -0,11
GDP, 2000 prices 2,0 -2,0 -1,0 1,7 2,6 2,7
drop may be as high as -2.5%, if business confidence is
not swiftly restored in the economy. A GDP fall by -1.0% Growth in government consumption reached 10.5%
would be primarily a function of private consumption 2009, from 0.6% in 2008 and 7.7% in 2007. For 2010,
falling by a further -1.5% following the decline by 1.8% in
fiscal adjustment entails that government consumption
2009, and investment falling by another -4.3%, on top of
the -20.2% fall in 2009. Net exports contribution to growth will be substantially negative, of about -6.0%, due
growth is set at 1.5 percentage points vs. the 4.8 p.p. to the measures already announced to cut public
contribution in 2009, as the current account deficit will spending in order to bring down the general government
continue to improve. deficit to les than 8.7% in 2010. Moreover, government
consumption growth will remain negative in 2011 and in
More specifically, private consumption is now estimated
2012, falling at annual rates of about -4.0%, as the fiscal
to have registered a fall of -1.8% in 2009, from an
increase of 2.3% in 2008. This fall in consumption took adjustment effort will continue unabated until the deficit
place despite the substantial increase of gross disposable falls bellow the 2.8% of GDP in the year 2012. This will
income of the private sector by more than 5.0% (3.8% in constitute a substantial withdrawal of the public sector
real terms). As a result, in 2009 Greece registered a from the economy, allowing more room for the private
surge of the gross saving rate of the private sector to sector to participate more actively in offering various
levels above 17% in 2009, from 12.9% in 2008. It should categories of goods and services.
be noted hear that the wage bill of the Central
government registered an increase of 11.5% in 2009 and Total fixed investment is now estimated to have fallen
the same or even higher increases occurred in the substantially by -20.2% in 2009, from -7.4 in 2008 and an
broader public sector, affecting overall more than 1.5 increase of 4.9% in 2007. Moreover, an additional
million employees, while in the private sector effective negative growth of fixed investment of -4.3% is
wage increases may have been contained. Also, expected for 2010, mainly due to the estimated

continuing fall of housing investment by -19% in 2010, (3299/2004) in the period 2005-2008 on the other. About
from -26% in 2009 and -29.1% in 2008. General 6,543 projects were submitted, of which 4,300 were
government investment fell by -2.0% in 2009, following approved in H1 2009. Total budgeted value of investment
a fall by -0.1% in 2008, while spending under the Public in these projects reached 8.9 billion, in which a
Investment Budget (PIB) fell by -2.8% in 2009, following government subsidy of 3.7 billion was included. Most of
an increase by 9,3% in 2008. For 2010, PIB expenditure these investment projects were to be implemented and
is expected to increase by 13.6% in nominal terms as completed in the period 2008-2009, but, due to the
projected in the budget of 2010. Overall general international turmoil, may have been postponed to a great
government investment is expected to increase by about extent for implementation in 2010.
7.0% in real terms, taking into account the expected
Finally, the Greek housing sector is in the midst of a
acceleration of the absorption of funds awarded to
substantial slowdown in 2007-2010. This was initially in
Greece from EU structural funds through the Community
response to the extraordinarily high level of residential
Support Framework 2007-2013 (CSF IV). In fact, other
investment in 2006, following a tax related building
construction investment, which is also co-financed by
permits explosion in 2005. However, in 2009 this sector
the CSF IV, registered a 0.2% growth in 2009, from 2.2%
has been substantially affected by the international
in 2008, and is expected to register substantial positive
economic crisis, while from October 2009 onwards id may
growth from 2010 onwards. More dramatic was the fall in
have been affected by Greeces own debt crisis.
investment in equipment by a -25.0% in 2009, following
Therefore, residential investment has fallen substantially
an increase of 6.3% in 2008. In fact it now evident that
in 2009 and it is expected to fall again in 2010 as
various categories of investment projects were delayed or
analyzed above. Housing price inflation had also slowed
postponed in 2009 on the back of the unprecedented
down to around 1.7% in 2008, and has now turned negative,
uncertainty due to the global economic and financial
to the order of 3.4% y/y in Q1 2009, -2.6% yoy in Q2 2009
crisis. In particular IOBE research has shown that
and to -5.3% yoy Q3 2009. On the other hand, the abrupt fall
manufacturing sector investment may have fallen as
in residential investment in 2007-2009 imply that, despite the
much as -40% in 2009.
fall in demand for houses, excess supply in the market does
The absorption of EU funds by the government and the not increase. Moreover, Greeces status as a favoured tourist
private sector in 2009, were unexpectedly low despite the destination, in combination with its increasing attractiveness
fact that funds more than 9.0 billion were to be as a destination for the establishment of summer homes for
absorbed from the EU during 2009-2010. Moreover, the European citizens, may enable both tourism and the housing
government has attempted in the last few years to sector in Greece to benefit from the expected recovery of the
implement most of the public sector investment projects European economies in 2010 on wards.
through Public Private Partnerships (PPP), thus justifying
The above assumptions concerning final consumption
the aforementioned fall in general government
and fixed investment, with the assumption of a fall in
investment. Following a relatively long gestation period, a
stocks by an estimated -165% in 2009, imply that the
number of important infrastructure projects (budgeted at
overall domestic demand registered a negative
5.7 billion) were awarded to consortia of construction
growth of -6.2%, contributing to a sizable improvement
companies (domestic and foreign) in 2007 and 2008 and
of the external goods and services deficit (national
had been planned to be implemented mainly in 2009 and
accounts basis) to 6.9% of GDP in 2009 from 11.6% of
in the following years. However, the implementations of
GDP in 2008 and 12.7% of GDP in 2007.
these PPP projects have not taken place in 2008 and in
2009. In this later period, the government has only The domestic demand slowdown in 2009 is reflected
accelerated the implementation of projects financed mainly in total imports of goods and services, which
through the public investment budget, but none of the registered a -24.7% fall in 2009, following a 0.2%
PPP projects have yet entered the implementation phase. increase in 2008. Moreover, these imports are expected
to fall again by -4.8% in 2010 on the back of an -2.4 fall in
Finally, the European Commission had indicated its
domestic demand in the current year. On the other hand,
willingness to increase the EU contribution for financing
exports of goods and services registered an expected
investment projects, as well as employment support
fall by -16.5% on 2009, following a robust 4.0% growth in
measures in 2009 and 2010, thus reducing the burden
2008. Moreover, Greek exports are expected to recover
imposed on the member-country budgets. Again it is now
slightly, by 1.0% n 2010 on the back of the recovery of
evident that Greek governments abstained from using
the European economies and in particular the economies
these facilities in 2009, where the absorbed funds from
of SE Europe, as well as of the recovery of the volume of
the structural funds did not exceed 2.0 billion from 3.7
the international trade (2010: +6,5%, 2009: -12.5%)
billion planned in the budget 2009.
affecting Greek shipping. On these grounds, overall, net
Business investments were also expected to be boosted exports have had a substantial positive effect on GDP
by the expansion of project development via PPPs on the growth of 4.8pps in 2009, from 0.85pps in 2008 and are
one hand and by the large number of investment projects expected to continue exerting a positive effect on Greek
approved under the investment incentives law

GDP growth of 1.5pps in 2010 and around 0.3pps from time Germanys growth in the following years can only be
2011 onwards. based on its success to boost domestic demand.
Nevertheless, on the basis of the evidence presented in
COMPETITIVENESS: Growth dynamics in the Greek
economy have been constrained in the past by the Diagram 5, it is more than evident that the various recent
traditional domestic economic policy stance (mainly the reports by international economists pointing out, between
domestic incomes and fiscal policies), which implies a others, Greeces loss of international competitiveness in
gradual but continuous deterioration of international recent years as one of the main causes of its over
competitiveness and also the continuous deterioration of indebtedness have been misleading to say the list.
its public finances at the expense of the private sector.
However, from 2010 onwards the international Diagram 5. Real Effective Exhange Rate with respect
competitiveness of the country will be improving following to ULC in the economy
a zero or negative growth of the domestic unit labour 140
Germany
cost, implying a substantial positive effect on growth from 135 Greece
2011 vie the private sector. More specifically: 130 Spain
125 Ireland
Greeces GDP growth and domestic employment have
120 Portugal
been negatively affected by the continuing high growth of
115
domestic unit labour costs, which is contributing to a
110
gradual erosion of its international cost competitiveness
105
(against the 36 countries included in the basket used by
100
the European Commission). This takes into account the
95
strong Euro against most of the regional currencies in
90
Central and Eastern Europe including Turkey, as well as
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
in SE Asia and in other emerging economies.
However, recent (revised) data from the European
Commission (Diagram 5.) shows that Greeces ULC- INFLATION: CPI inflation reached 2.4% in January 2010,
based real effective exchange rate (REER) against the down from 2.6% in December 2009, from 2.0% in
above 36-countries had appreciated at the end of 2009 by November 2009 and 0.7% in September 2009, 0.5% in
7.6%, which, however, is much less than the appreciation May and June, and 2.0% in Dec. 2008. Core inflation
in the case of Ireland, Spain, Portugal and other (which in Greece excludes unprocessed food and energy
Eurozone countries. This indicates that although a case products) also fell to 1.6% in January 2010, from 1.9% in
can be made concerning Greek international Dec.2009 and 3.4% in Dec.2008. Inflation in Greece is
competitiveness against most emerging economies and expected to fall again to 2.3% in March 2010, to 2.2% in
especially China and other countries of SE Asia, the case August 2010 and in 1.9% in December 2010. Average
of deteriorating Greeces international competitiveness inflation fell to 1.1% for 2009 as a whole, from 4.2% in
within the Eurozone does not stand. Moreover, according 2008 and is expected to increase to 2.2% in 2010.
to data published by the European Commission, ULC growth Overall, Greek CPI inflation remains higher than in the
reached 3.5% in 2007, 3.9% in 2008 and 2.5% in 2009 in Eurozone, as Greece is still experiencing higher growth in
Greece, compared with 1.6% and 3.4% and 3.4% domestic public utilities prices.
respectively in the Eurozone. As a result, the Greek REER
BALANCE OF PAYMENTS: The current account deficit
appreciated by 1.3% in 2007, 1.7% in 2008 and 0.9% in
(CAD), which includes net capital transfers, fell in Jan.-
2009, compared with 1.8%, 3.9% and 4.5% respectively in
November 2009 by -22.2%, reaching 21.58 billion or
the Euro area. Therefore, Greek international
9.0% of GDP, from 11.6% of GDP in Jan.-Nov. 2008.
competitiveness in 2007-2009 has not worsened against the
Developments in the Greek BoP in 2009 reveal the effect
Eurozone average, but it has worsened with respect to
of the substantial fall of domestic demand in Greece due
countries which are experiencing exchange rate depreciation
to the international economic crisis.
with respect to the Euro. Overall, the challenge for Greece to
reign in domestic wage growth is now more pressing as Of particular importance was the substantial fall of the
competition to gain market share in international markets will deficit of the trade balance by -31.7% as a result of the
be even more intense in the following years. fall of exports of goods by -24.6% and the even higher fall
of imports of goods by -29.5%. In fact, payments for
In any event, Greece is a very small economy and can
imports of fuels were 5.9 billion lower than in Jan.-Nov
regain its growth dynamics through exports of goods and
2008. Also, payments for imports of goods excluding fuels
services (tourism, shipping) in a world economy which is
and ships were lower by 9.5 billion, while the
entering a robust growth path. In the period of fiscal
corresponding fall in exports excluding fuels and ships did
adjustment, Greeces REERULC will turn downwards, while
not exceed 2.48 billion.
at the same time Germanys and other developed countrys
REERULC will turn gradually upwards. Greece will become A second important development was the fall by -27.0%
more competitive and more export oriented. This way it can of the surplus of the balance of services, as a result of the
again have positive growth from 2011 onwards. At the same fall by -10.8% of earnings from external tourism, as well

as the fall by -35.8% of net receipts from international and 13.7% at end-December 2008. Loans to domestic
shipping. Payments for services imports were also lower households reached 49.8% of GDP in end-Jan 2010
by -16.2%. Thirdly, the deficit of incomes balance was (49.9% of GDP in end Dec 2009), compared to 64.3% of
lower in Jan.-November 2009 on a yearly basis, mainly GDP in the Eurozone in end-Jan 2010.
due to the fall of payments for interest, dividends and
profits to foreign investors in Greek financial assets Diagram 6. Credit Expansion
45%
(government bonds and shares) by -14.8%, from 18.6%
in Jan.-November 2008. Finally, the surplus of the 40% Mortgages
Consumer Loans
balance of current and capital transfers was substantially 35% Business Loans
lower on a yearly basis in Jan.-Nov 2009, by 5.1 billion, 30%
constraining an even bigger fall of the current account
25%
deficit. A further improvement of the CAD is expected for
20%
2010, where the deficit is estimated to fall to 7.5% of
GDP, compared with 9.3% of GDP in 2009, 12.7% of 15%
GDP in 2008 and 12.3% of GDP in 2007. 10%
Table 2. Greek Balance of Payments ( Billions) 5%

2006 2007 2008 2009
Trade Balance (TB) -35,29 -41,50 -44,05 -30,76 0%
Exports 16,15 17,45 19,81 15,32 2002 2003 2004 2005 2006 2007 2008 2009
Imports -51,44 -58,94 -63,86 46,08
Services Balance 15,34 16,59 17,14 12,57 Moreover, lending growth to businesses decelerated to
Tourism Receipts 11,39 11,32 11,64 10,37 4.5% at end January 2010, from 5.1% at end-Dec.2009,
Shipping Receipts 14,32 16,94 19,19 13,55
Income Balance -7,12 -9,08 -10,64 -9,80
from 6.2% at end-September 2009, 8.8% y/y at end June
Payment of Interest, Divid. & Profits -10,46 -13,55 -15,81 -13,52 2009, and 18.7% at end-Dec.2008. Overall, credit
Transfers' Balance 6,45 5,92 6,85 3,31 expansion to the private sector is expected to recover
Current Account (CA) -20,62 -28,06 -30,71 -24,69
CA (% of GDP) 9,6% 12,3% 12,6% 10,3%
slightly to 3.0%- 5.0% by year-end 2010, which is in line
Capital Account 20,36 27,57 29,91 24,23 with an expected nominal GDP growth of about 2.6%. In
Source: Bank of Greece
fact the substantial improvement of the international
In the capital account of the Greek balance of economic environment from Q3 2009 onwards and in
payments, net capital inflows fell to 22.05 billion in Jan.- particular of the main financial markets may lead to an
November 2009, from 27.16 billion in Jan.-Nov.2008. eventual revival of the demand for credit by the private
Net capital inflow through foreign direct investment (FDI) sector , both in Greece and in other European countries,
reached 1.33 billion from 1.06 billion in Jan.-Nov. despite the continuing relatively tight credit rules applied
2008. This was mainly due to higher FDI by foreign firms by banks. The improvement of liquidity and capital
in Greece of 2.34 billion (Jan.-Nov.2008: 2.95 billion), adequacy structures of banks in recent months should
as well as to the substantial fall of FDI by Greek firms help to sustain credit expansion at modest levels, given
abroad to 1.0 billion (Jan.-Nov.2008: 1.89 billion). Net the expected low pace of activity in the Greek economy.
Capital outflows for portfolio investment abroad by
Diagram 7. Athnes Stock Exchange Indices
Greek residents revived in the last months, resulting in a
net outflow of 3.8 billion in Jan.-Nov.2009. On the other 7000
hand the Jan.-Nov.2009 period witnessed a substantial 6000
increase of net capital inflows from foreign residents for 5000

portfolio investment in Greece to 35.95 billion, from
4000
20.63 billion in Jan.-Nov.2008. Finally, there was a net
outflow of other investments (primarily bank borrowing 3000
and lending) of 11.5 billion in Jan.-Nov.2009, from a 2000
substantial net inflow of 10.33 billion in Jan.-Nov.2008. 1000

This net outflow comprises an inflow of 12.7 billion from
0
foreign banks to Greek banks and an outflow of 24.15 2005 2006 2007 2008 2009
billion from Greek banks to banks outside Greece. ASE Compostive FTSE 20 FTSE Mid Cap 40 FTSE Small Cap 80
MONEY & FINANCIAL MARKETS: Credit expansion to

By the end of December 2009, the main ASE composite
businesses and households decelerated further to 3.8%
index was up by 22.9% since the end-2008 (FTSE-20
in January 2010, from 4.2% at end- Dec.2009, 7.6% at
stocks: +20.7%, mid-cap FTSE-40: +37.5% and small
end-June 2009, 10.8% at end-March and 15.9% at end-
caps FTSE-80: +1.2%). Following these developments, at
Dec 2008. In particular, mortgage and consumer lending
the end of December 2009 48.5% of the total stock
growth reached 3.6% and 1.6% respectively at end
exchange value of listed firms was in the hands of foreign
January 2010, from 3.7% and 1.8% respectively at end-
investors ( 40.727 billion), down from 51.8% at end 2008
Dec.2009, from 4.4% and 2.9% respectively at end
( 196.4 billion).
September, 6.0% and 6.6% at end June 2009 and 11.5%

rating for the countrys long-term foreign currency debt.
2. ROMANIA Meanwhile S&P announced that it would consider raising
ECONOMIC OVERVIEW: GDP growth declined by -7.4% y/y Romanias economic outlook to stable from negative after
in Jan-Sep 2009, with a decline of -7.1% y/y in Q3 GDP the endorsement of the budget law which would pave the
due to sharp falls in private consumption (-14.2% y/y) way for foreign borrowing.
investment (-28.6% y/y) and public consumption (-0.5% FISCAL POLICY: The general government deficit reached
y/y). These three items together had a negative 7.3% of projected full-year GDP in 2009, in line with the
contribution of 26pps to GDP growth. However this was conditions set by the IMF. Concerns over the fiscal
partly offset by a positive contribution of 15pps from the finances escalated following the collapse of the
external balance as imports declined by -15.4% y/y while government which delayed the implementation of key
exports increased by 1.9%. Once again, the highly legislation regarding uniform pay in the public sector and
volatile categories of changes in inventories and the the overhaul of the highly pressed pension system.
statistical discrepancy subtracted nearly 4pps from GDP However, lawmakers have approved both the state and
growth following the almost 10pps subtracted in the social security budgets which opened the door for the
previous quarter. On the supply side, industrial production resumption of the stand-by agreement with the IMF.
remained firmly in negative territory declining by -7.8% y/y
in Q3 2009. Construction, despite its positive With CDS spreads having stabilised and with an eye to
performance in Q1 2009, recorded a -17.4% y/y decline in raising additional financing given the relatively favourable
Q3 2009. The agricultural sector recorded positive growth conditions in the financial markets, the Romanian
of 2.4% y/y in Q3 2009. The fall in valued added government is set to launch a Eurobond issue with the
accelerated in all branches of the services sector with the value of 1 billion. These funds will be added to the 1
exception of public administration. billion from the European Commission and the 2.3
billion under the 3rd and 4th tranches from the IMF. The
Retail Sales (% YoY)
IMF indicated that the third, and possibly fourth, tranches
40% of Romanias IMF credits could be released in February
32% 2010, after a new government has been installed and
24% parliament approves a consolidated budget deficit for
16% 2010 equivalent to 5.9% of GDP (or 6.5% of GDP using
8% the EU methodology). It has also been announced that
0% the European Commission will postpone the 2012
-8% deadline set for Romania to meet the 3%-of-GDP budget
-16% deficit rule, citing the fact that the economic recession
-24% was more severe than expected and that the government
2006 2007 2008 2009 had already taken measures for fiscal consolidation. The
Retail Sales 3m MA
government plans to cut the deficit from 7.3% of GDP last
year to 5.9% in 2010.
Looking at the final quarter of 2009, according to the first
HICP Inflation (% YoY)
flash estimate, GDP growth declined by -6.6% y/y and -
1.5% q/q. This decline is supported by growth in industrial 10%
production and retail sales which has remained in

8%
negative territory, albeit with the growth outlook beginning
to improve in the final month of 2009. Indicatively, 6%
industrial production accelerated to 11.6% y/y in
4%
December from 3% y/y in November following a year of
negative growth. For the 12 months till November 2%
industrial output declined by -7.2% y/y. Meanwhile, the
decline in retail sales moderated with growth of -9.4% y/y 0%
in Q4 from -12.2% y/y in Q3 and -13.6 y/y in Q2 2009. As 2006 2007 2008 2009
Headline Core
such, for 2009 as a whole growth is now expected at
around -7.0% y/y, an improvement on earlier forecasts
which were looking for a decline of over -8.0% for the INFLATION: The Romanian Leus 20% depreciation versus
year. Looking forward, the growth pick-up in the euro the Euro during Q4 2008 and Q1 2009 and various excise
zone and in the Balkans is expected to remain modest in tax increases conspired to constrain the disinflationary
2010, while demand in Romanias main EU export process. Indicatively for 2009, headline consumer price
markets will remain weak. As such, growth will remain inflation increased to 4.74% y/y in December 2009 (6.3%
modest and is forecast at between 1.0-2.5% y/y in 2010. y/y December 2008) from 4.65% y/y in November and
exceeded both the Central Banks year-end inflation
Fitch improved raised Romanias economic outlook to forecast of 4.5% y/y as well as the Banks inflation target
stable from negative and confirmed the BB+ level of the of 3.5% 1pp.

A significant contributing factor to Decembers inflation liabilities by 5pps to 25% in advance of the IMF third
rate were tobacco prices which increased 39% y/y due to tranche. Even so, forex reserves remain at one of their
higher excise rates, contributing 1.77pps to the headline highest levels following numerous disbursements by
rate. Adjusting for this, inflation would have declined multilateral lenders since May 2009. International
slightly to below 3.0% y/y. Looking forward, a more stable reserves stood at 30.9 billion y end-December 2009.
currency implies a positive base for inflation in the coming Exchange Rate Developments
months. Average headline consumer price inflation is
4.5
expected to decline to 3.7% in 2010 from 5.7% in 2009. In
2010, the headline rate accelerated to 5.2% y/y in 4.3
January, driven by excise-tax related increase which saw 4.1

a 13% m/m rise in tobacco prices and 4% m/m rise in the 3.9
price of electricity. The 1.7% m/m rise in was the highest 3.7
since April 2005. 3.5
BALANCE OF PAYMENTS: After reaching -13.6% and 3.3
-12.3% of GDP in 2007 and 2008 respectively, the current 3.1
account deficit to decline to -4.3% of forecast GDP in 2006 2007 2008 2009 2010
2009. The deficit declined by -69% y/y to 5.05 billion. RON per EUR 6m MA 3yr Avg
Driving this correction was the trade deficit which

narrowed by 64% y/y to 6.75 billion. Merchandise MONEY & FINANCIAL MARKETS: During a period of
exports decline by some -14% y/y to 29 billion while prolonged volatility from August 2008 until March 2009,
imports declined by a more substantial -33% y/y to 35.8 the Romanian Leu lost 51.6% of its value against the US
billion. However, the 659 million surplus on the Services Dollar and 22.5% against the Euro. The period from
account in 2008 turned to a deficit of -267 million in March 2009 until late November 2009 was one of relative
2009. Meanwhile, the deficit on the Incomes account calm having fluctuated around the RON 4.24 / range .
improved from -3.6 billion in 2008 to -2.1 billion in Thereafter the Leu has strengthened by around 4%
2009. The surplus on the Current Transfers account during December 2009 and February of 2010 and is now
declined by -31% y/y to 4.1 billion. Wage remittances trading around RON 4.12 / . More recently though, the
(the primary inflow component of current transfers) NBR has announced that further interventions in the
declined by 2 billion to 3.5 billion. As had been foreign-exchange market would be "cautious", which
expected, FDI declined -48% y/y to 4.9 billion following could result in increased volatility, but the end of the
rather weak inflows in the final quarter of 2009. Even so, political crisis and the resumption of IMF lending should
coverage of the current account deficit improved to 97% enable the NBR to preserve stability assisted by foreign-
from 59% in 2008. While inflows of foreign direct exchange reserves. The rapid deceleration of inflation and
investment (FDI) are expected to increase in 2010, the the relative stability of the Romanian Leu since March 2009
loan packages agreed to with the IMF, the EU and other has enabled the National Bank of Romania (NBR) to
international organisations means that Romania should implement various measures aimed at providing
not have problems in meeting its financing requirement necessary liquidity to the economy. Indicatively, in
(the current-account deficit plus principal repayments). January 2010 the NBR supplied around RON 6.0 billion
Going forward, subdued bank lending and wage growth or 1.45 billion via a standard one-week repo transaction
will constrain both imports and the trade deficit in 2010- following the sudden rise in the short-term interest rate
11. As a result, the current account deficit is expected to from 3% to over 7%. The NBR has also undertaken a
decline to around 4.0% of GDP in 2010. series of key-policy rate cuts, reducing the rate by 275bps
to 7.5% in January 2010 from a high of 10.25% in August
EXTERNAL DEBT & INT. RESERVES: gross external debt
2008. The Central Banks foreign exchange reserves
increased by 9% YTD or 6.5 billion in Jan-Nov to reach
stood at 28.3 billion in December 2009 from 27.3
78.5 billion by end-November 2009 and is forecast to
billion in August 2009 and 26.2 billion in December
reach 66% of full-year projected GDP. A large part of
2008.
these funds were disbursed by the IMF, EC and WB
under the multilateral rescue package. Importantly, there (Data reported in Euros). Credit expansion to the private
has been a shift toward reduced reliance on short-term sector has continued to decelerate and has further begun
debt, which now accounts for roughly 19% of total contracting since June 2009. The latest figures show
external debt (as of end-Nov) versus 29% at the end of negative yearly growth of -3.9% y/y in December from -
2008. 8.9% in September 2009 (18.6% in December 2008) as
business credit contracted by -4.0% and household credit
Foreign currency reserves increased by 335 million in
by --3.8%. It should be noted that credit penetration
November 2009 to reach a record 28.7 billion at the end
remains relatively low at around 40% of GDP in 2009,
of the month. However, in December 2009 reserves
while the Loan-to-Deposit ratio has declined to 1.19 by
declined by 434 million to 28.3 billion as the monetary
December 2009 from 1.31 in December 2008.
authority reduced the required reserves ratio for forex

3. BULGARIA growth is expected to accelerate to 3.8% in 2011 and
4.8% in 2012.
ECONOMIC OVERVIEW: According to preliminary data,
GDP growth declined by -6.2% y/y in Q4 and -5.1% in Moodys changed the outlook on the sovereign Baa3
2009. This negative growth in 2009 was mainly due to the rating to positive from stable, restoring the outlook, which
fall in private consumption and fixed investment by -5.9% was in place before the outbreak of the financial crisis in
y/y and -24.9% y/y respectively, while government September 2008. The outlook on the A1 foreign currency
consumption declined -4.8% y/y. Overall, for 2009 final bond ceiling and the Baa3 foreign currency deposit ceiling
domestic demand registered negative growth of -5.8% y/y were also changed to positive from stable. The agency
subtracting around 11pps from GDP growth. Meanwhile, cited the strength of Bulgarias public finances and the
exports of goods and services declined by -10.0% y/y, overall resilience to the international financial crisis as
with imports of goods and services declining by at - well as the fact that budget deficit is expected to remain
21.8%. As a result of the improvement in the balance of low by global standards. It is expected that the recession
payments, net exports subtracted around 7pps from GDP will come to an end by mid-2010 with a resumption of
growth in 2009, implying that a further adjustment is still economic growth 2011-2012 backed by significant EU
necessary. funds and FDI inflows attracted by low costs.
Industrial Production - (% YoY) FISCAL POLICY: The general government registered a
23% budget deficit of BGN 31.3 million ( 16 million) in
December and BGN 529.5 million or 0.8% of the
15%
expected full-year GDP in 2009. The deficit is expected to
7%
remain below 2% of GDP under the Eurostat
-1% methodology. For 2009 as a whole, government revenues
-9% declined by -8.4% to 76.9% of the annual plan, including
9% growth in tax revenues (78.4% of the planned).
-17%
Growth in government expenditure narrowed to 0.9%
-25% inline with the governments commitment to cut pubic
2006 2007 2008 2009
spending. Indicatively government expenditure plunged
IP Total 3m MA
by -26.4% y/y in November and -45.5% y/y in December.
The overall consolidated fiscal position is expected to be
Echoing the -6.2% y/y decline in Q4 GDP growth,
deficit of at BGN 465 million or -0.7% of GDP this year
industrial production posted growth of -12.1% y/y in
and -0.4% of GDP in 2011 and 2012.
December (preliminary data) and -10.8% y/y in November
2009, following a -16.5% y/y growth in October. Industrial While general government debt increased by 0.9% m/m
production is estimated to have fallen by roughly -15.0% in November 2009, it declined by -3.5% YTD to 4.8
y/y in Q4, -15.5% y/y in Q3, following a -20% y/y fall in Q2 billion or 14.7% of projected full-year GDP versus 15.8%
2009 and the -17% y/y decline recorded in Q1 2009. at end-2008. The share of the domestic government debt
Furthermore, industrial sales registered -9.8% y/y growth remained unchanged from 2008 at 31.5% of the total.
in December and -13.2% y/y in November 2009, following Meanwhile, Fiscal Reserves, as a percent of government
a decline of -19.6% y/y in October 2009. Moreover, debt, increased by 2.5pps to 86.3% by end-November,
construction output plunged by -33.3% in December and - albeit still below the 88% coverage at the beginning of
21.9% y/y in November 2009, from -25.7% y/y in October. 2009 and 120% in 2008. The ministry of finance has
The negative effect of the economic crisis on the retail announced that it plans to issue Lev 740 million of
sector lagged the downturn in the industrial sector. The domestic government securities in 2010, which would
recovery looks set to lag as well., with retail sales having cover maturing bonds to the value of Lev 590 million and
declined by -11.0% y/y in December, -10.1% y/y generate new financing of Le v150 million. It has also
November and -8.8% y/y in October. GDP growth is now decided not to issue 3 and 5 year bonds avoid creating a
forecast to decline by -6.5% in 2009, returning to 0% maturity burden in 2013 and 2015 which is when
growth in 2010 before turning positive with growth of Bulgarias global bonds denominated in Euros and US
2.8% in 2011. dollars will mature. Instead, the ministry has opted to
issue 2 and 4 year bonds, in addition to 7 and 10 year
More recently, the Bulgarian government adopted the EU
maturity periods.
Convergence Programme 2009-2012 which outlines the
preparations necessary for joining the ERM II mechanism INFLATION: Headline CPI inflation increased by 0.6% y/y
and the adoption of the euro. As part of its submission to and 0.5% m/m in December 2009 versus the 7.8%
the European Union, the finance ministry currently increase in December 2008 and the high of 15.3% y/y in
forecasts that GDP growth will be 0.3% this year versus - June 2008. This also follows the -0.1% y/y and -0.3%y/y
2% in the original budget for 2010. Thereafter, GDP declines in November and October respectively. The

rapid decline in inflation was due to a combination of base increase of private sector debt. Total foreign debt reached
effects as food and energy prices soared in the first half approximately 110% of projected full-year GDP. The
of 2009 only to be followed by a rapid decline on the back share of short-term debt declined to 34.4% from 35.5% at
of the global economic crisis and the resultant fall in the end of 2008. The ratio of foreign reserves to short-
domestic demand. Indicatively, food price inflation which term debt improved to 101.5% as of end-November from
was one of the dominant inflation drivers in 2009, has 99.8% as of end-October and 97% at end-2008 but
declined to -3.4% y/y in December from 24.2% y/y in remains below the 120% at end-2007. While foreign
June 2009. For 2009 as a whole, average inflation reserves decreased marginally by 0.01% m/m to 12.92
reached 2.8%, down from 12.3% y/y in 2008. Looking billion as of end-December, this represented a 1.6% y/y
forward, while oil prices and electricity prices are increase.
expected to increase in 2010, wage growth should be Exchange Rate Developments
minimal and credit growth subdued, as such inflationary
1.99 1.7
pressures from the demand side should be limited
implying a further moderation in inflation to around 2.0% 1.98 1.6
in 2010. Already in January 2010, headline CPI inflation 1.97 1.5

increased by 0.7% m/m and by 0.5% y/y as prices of non- 1.96 1.4
food items increased rather dramatically.
1.95 1.3
HICP Inflation - (% YoY)
1.94 1.2
18%
1.93 1.1
15%
2006 2007 2008 2009 2010
12% BGN per EUR (LHS) BGN per USD (RHS)
9%
MONEY & FINANCIAL MARKETS: Under the currency
6% board arrangement, the Bulgarian Lev is tied to the euro,
3% so the Bulgarian Central Bank has limited discretion in
adjusting monetary conditions. Political commitment to
0%
2006 2007 2008 2009 the currency board arrangement remains strong, and the
Headline Core peg is expected to stay in place until euro adoption which
may happen in 2014 at the earliest. Alcohol The real
BALANCE OF PAYMENTS: In 2009 the current account
effective exchange rate (REER) of the Lev continued to
declined by -66% y/y to 2.9 billion or an estimated 8.6%
appreciate in 2009, despite the sharp drop in inflation
of full-year GDP. This marks a substantial improvement
compared, due in large part to the fall in the value of the
following the 22.5% of GDP in 2008. Driving this
currencies of many of the countrys trade competitors.
correction was the deficit on the trade balance which
However at this stage concerns about competitiveness
declined by -99% y/y to 4.1 billion. Merchandise exports
are very unlikely to prompt a move away from the
declined -23% to 11.8 billion while imports declined by
currency board. Additional pressure may arise though if
-33% to 15.9 billion. The balance on the Services
Latvia and the other Baltic states were to abandon their
Account increased 77% y/y to 1.4 billion while the deficit
currency pegs, though the BNB would most likely still act
on the Income Account declined to -727 million. The
to maintain the currency board arrangement.
financial and capital account saw net inflows decline to
2.6 billion in 2009 from 11.7 billion in 2008. While Net Bank lending continues to slow, from 62.7% and 31.6% in
FDI inflows declined by -55% y/y to 2.52 billion in 2009, 2007 and 2008 respectively, to 3.8% y/y in December
coverage of the current account deficit increased to 93% 2009. Lending to households slowed to 5.8% in
versus 70% in 2008. Of total FDI inflows, roughly 1.2 December from 31.3% in December 2008, while lending
billion was related to financial investment, including equity to businesses slowed to 2.6% from 31.8% in December
capital, with 500 million directed towards real estate, 2009. Credit penetration increased to 78.8% of forecast
construction, tourism, trade, and office areas. State GDP versus 66.7% in 2007. Bank deposits increased by
officials currently forecast that FDI may increase to 7.4% y/y in December, down from 34.4% in 2007 and
around 3.3 billion in 2010 from an estimated 2.7 billion 9.2% in 2008. Term deposits increased by 15.3% y/y in
in 2009 and 6.8 billion in 2008. The current account December from 22.3% end-2008, while Sight & Savings
deficit is forecast to decline to 6.7% of GDP in 2010 and deposits decreased -10.1.% y/y in December. The loan-
4.9% in 2011. to-deposit ratio now stands at 1.32.
EXTERNAL DEBT & INT. RESERVES: While gross external 4. CYPRUS
debt declined by -2% y/y it increased by 0.3% m/m to ECONOMIC OVERVIEW: Economic activity has contracted
36.99 billion by end-November due largely to an by an estimated -1.0% in 2009, which reflects the
negative impact of the global financial crisis on

investment and exports. De-stocking is also estimated to were recorded in the prices of housing, water, electricity
have had a large negative impact on growth, albeit this and gas. With over 95% of electricity generated by
was partly offset by the positive contribution of the foreign burning oil, changes in international oil prices have a
balance as imports have contracted by more than significant impact on prices. Even so, prices started to
exports. Economic activity weakened further in Q3 with pick up by the end of the year, increasing to 1.6% y/y in
GDP growth of -2.5% y/y bringing growth for the Jan-Sep December from -1.0% y/y in Q3 and 0.4% y/y in Q2 2009.
period to -1.2% y/y. Private consumption moved into Looking towards 2010, on the back of recent oil price
negative territory with growth of -1.1% y/y in Q3 and 0.8% developments and powerful base effects, a rapid return to
y/y in Jan-Sep 2009. Investment activity remained the trend inflation of around 2.5% is expected, reaching
depressed with negative growth of -12.0% y/y in Q3 and - 2.0% in 2010 and 2.8% in 2011.
7.2% y/y in Jan-Sep 2009. Growth in exports of goods
BALANCE OF PAYMENTS: The current account deficit
and services continued to worsen, declining -14.2% y/y in
increased by 69.4% y/y in 2008 and reached 17.2% of
Q3 and -11.3% y/y in Jan-Sep, while imports of goods
GDP from 12.0% of GDP in 2007. This increase reflected
and services declined by -23.7% y/y in Q3 and -20.1% y/y
not only the sustained strength of consumer demand and
in Jan-Sep. With the UK economy being one of the
the surge in commodity prices during the first half of
hardest hit by the global financial crisis and the sterling
2008, but also the weakening of external demand in the
having weakened sharply against the euro, this will
second half of 2008. However, in 2009, weaker import
constrain foreign demand for real estate as well as tourist
demand and lower global commodity prices have led to a
arrivals (the UK accounts for about 50% of the total
rapid decline in Cyprus' import bill, prompting the current-
number of tourists visiting Cyprus). As a result, tourism,
account deficit to fall from 17.2% of GDP in 2008 to an
demand for undeveloped land and construction, fuelled in
estimated 6.7% of GDP in 2009. Foreign trade figures for
part by the purchase of holiday homes by non-residents,
January-September have underlined the collapse in both
especially residents from the UK, are expected to remain
external and domestic demand shown by the national
weak in 2010-11. The outlook for Cyprus in the coming
accounts figures. During the first nine months, the current
two years remains weak, with growth expected to lag
account deficit declined by -67% y/y. Driving this
behind the EU average. Economic activity is not expected
improvement was the trade deficit which declined by
to recover much in 2010 due to weak global demand and
-26% y/y to 3.3 billion on the back of a -17.3% y/y
depressed private consumption and investment. While
decline in merchandise exports and a -25% y/y decline in
the European Commission forecasts GDP growth of just
imports. Likewise, services receipts decline by -11.5% y/y
-0.7%, the current flash estimate of -2.7% y/y Q4 GDP
and services payments by -17.7% y/y in Jan-Sep 2009.
growth implies that growth might be as low as -1.5% in
As result, the combined deficit on the Goods and
2009 before recovering to around 0.5% in 2010.
Services account declined to 623 million from 1.6
FISCAL POLICY: The general government surplus fell to billion in Jan-Sep 2008. The surplus on the financial
0.9% of GDP in 2008 from 3.4% in 2007. This was due to account declined by -68.5% y/y to 560 million from 1.8
both a shortfall in revenues (the outcome of weaker billion in Jan-Sep 2008. Foreign direct investment
activity in the real estate sector), and to expenditure declined -7.2% y/y to 650 million, portfolio investment
overruns (due to the drought and the related expenses remained weak with net outflows of 4.8billion, while the
associated with maintaining water supplies and Other Investment account weakened further with net
compensation to farmers). In 2009, as economic growth inflows declining -25% y/y to 5.1 billion.
slowed, public finances deteriorated. A sharp rise in
MONEY & FINANCIAL MARKETS: The decline in total
expenditure and fall in revenue pushed the general
credit expansion has proved to be relatively modest, with
government deficit up to an estimated 6.1% of GDP in
growth easing from 34.3% in December 2008 to 28.5% in
2009 as a whole, compared with a surplus of 0.9% of
March 2009 and now 7.0% in December 2009. Likewise,
GDP in 2008. The draft 2010 budget which was
credit to businesses has eased to 5.7% in December
presented to parliament in October 2009 contained only
2009, from 38.3% in March and 44.7% December 2008.
minor changes from the initial draft announced earlier in
Credit expansion to households decelerated to 8.8% in
September. While the proposed budget refers to a series
December 2009, from 16.4% in March and 21.7% at end-
of supplementary measures that could be taken in 2010
2008, with mortgage expansion of 21.1% in December
as a means to restraining the budget deficit to below 3%,
2009, from 22.2% in March and consumer credit
they are not accounted for in the budget target itself. In
expansion of -2.6%% in December 2009 from 11.4% in
actual fact, the European Commission forecasts a deficit
March.
of 5.7% of GDP for 2010, which reflects the base effect of
a higher deficit in 2009, a somewhat gloomier 5. SERBIA
macroeconomic scenario and a more prudent ECONOMIC DEVELOPMENTS: Following a decade of stellar
assessment of measures on the revenue side. economic performance, GDP growth slowed to 2.8% y/y
INFLATION: Weaker domestic demand and the impact of in Q4 2008 and to 5.8% for the full-year 2008. The
lower oil prices helped to reduce average annual inflation Serbian economy has continued to contract in 2009,
to 0.4% in 2009 from 4.4% in 2008. The steepest declines registering GDP growth of -2.3% y/y in Q3, -4.6% y/y in

Q2 and -4.2% y/y in Q1 of 2009 (revised from earlier salaries and pensions if Serbias economic growth
3.5% decline). Reflecting the collapse in demand, the exceeds the currently forecast 1.5% in 2010. The IMF
manufacturing sector recorded a decline of -14.1% y/y in warned that Serbia has already breached the terms of its
Q3 and -20% y/y in Q2. The construction sector stand-by loan by allocating more funds than agreed for
weakened further, contracting by -18.5% y/y in Q3 from public sector wages in the 2010 budget. In December
-16.1% y/y in Q2 and -13.8% y/y in Q1. Positive 2009 public debt increased 12% y/y to 9.85 billion from
contributions were recorded in Q3 in the transport and end-2008. This marked a 5.7pps increase to 31.3% of
communications sector (8.5% y/y), financial projected GDP. The finance ministry forecasts total public
intermediation (4.2% y/y) and agriculture (2.4% y/y). debt to widen to 34% of GDP in 2010 and 34.8% in 2011.
Economic activity appears to have remained weak in the
INFLATION: Following consecutive m/m declines, CPI
fourth quarter with industrial output having contracted by
inflation moved higher in December with headline CPI
-4.2% y/y in November and -5.8% y/y in October an
inflation increasing 6.6% y/y in December from 5.9% y/y
improvement from the -15.4% y/y and -14.1% y/y decline
November. The December increase was driven by
in July and June respectively. In Jan-Nov, industrial
transport prices which increased 5.6pps to 21.1% y/y,
output declined by -13.1% y/y fuelled by a -17% y/y drop
communications (11.3%), and restaurants and hotels
in manufacturing output. While manufacturing output
(7.1%). Food prices accelerated by 0.7pps to 0.8% y/y
registered the steepest decline with growth of 5.4% y/y in
while utility prices by increased 1pps to 6.8% y/y.
November, it still marked a modest easing from the
Average annual CPI inflation reached 8.4% remaining
-20.2% y/y recorded in July. GDP growth is now forecast
within the Central Banks target band of 6-10%. For 2010
to reach -3.0% y/y in 2009 and 1.5% y/y in 2010. Serbias
the central bank expects inflation to move towards the
central bank has revised its full-year forecast for 2009 to
lower limit of the current inflation target of 8% +/-2 pps in
-2.7% and 1.5% in 2010.
the first half of 2010 and to remain low in the coming
Standard & Poors reaffirmed Serbias long and short- period.
term sovereign ratings at BB- and B respectively with a
BALANCE OF PAYMENTS: In terms of GDP, the current
negative outlook for the economy. While Fitch affirmed
account deficit has declined significantly from the 17.8%
Serbia's long-term foreign and local currency Issuer
reached in 2008. During Jan-Nov 2009 the current
Default Ratings at BB- with negative outlook for the
account deficit declined -71% y/y to 1.6 billion. This
economy.
improvement was driven by a -37% decline in the trade
FISCAL POLICY: The 2009 general government deficit deficit with merchandise imports having declined by
narrowed by 9.2% to RSD 95.3 billion ( 978.1 million) or -29% y/y while exports declined -20.6% y/y in Jan-Nov
3.2% of GDP under the latest revision of last years 2009. The services account posted small 3.3 million
budget law adopted by the parliament on the 30th deficit in Jan-Nov, compared to 174 million deficit during
December 2009. This still marks a substantial increase in the same period of 2009. The income account deficit also
the deficit from 2008, with government revenues declining narrowed by -38% y/y to 458.3 million in Jan-Nov.
by -0.6% y/y due to fall in economic activity and foreign Current transfers surplus increased 36% y/y to 3.22
trade. However, government expenditures rose by 6.4% billion in Jan-Nov. While the financial account recorded a
y/y driven by higher transfers and donations (+46.3% y/y), 1.67 billion surplus, this still reflected a -70% y/y
as well as interest payments (+44.2% y/y). However, the decline. As was to be expected, FDI declined
generous income policies that existed in 2008 were -38% y/y at 1.1 billion in Jan-Nov, while the deficit on
abandoned in 2009 as the cabinet implemented various the portfolio investment account declined by -22.5% to
cost-cutting measures during the year aimed at alleviating 49.7 million. FDI coverage of the current account
the effects of the global crisis. Indicatively, payments to reached 71% of the current account deficit. The current
the state employees registered a nominal increase of account deficit is projected to decline to -6.5% of GDP in
2.1% y/y, while subsidies recorded a -17% y/y drop, as 2009.
did capital expenditure (-42.3% y/y). The 2010 budget
EXTERNAL DEBT & INT. RESERVES: By end-November
includes measures such as a freeze on public sector
2009, gross external debt increased by 137.6 million to
salaries; a cut in the public administration workforce, a
reach 22.03 billion or roughly 69.9% of projected 2009
reduction in the number of capital spending projects as
GDP. This development was largely due to an increase in
well as limiting subsides. In addition, the IMF extended
private external debt which increased by 137.7 million
the standby arrangement with Serbia through to the end
to 15.2 billion. Public debt will once again increase
of 2011, ensuring access to the two remaining tranches
following the withdrawal of the second 350 million
under the 2.94 billion stand-by loan.
tranche under the stand-by loan agreement with the IMF
The 2010 budget projects a RSD 107 billion deficit in December 2009.
(consolidated fiscal deficit of 4% of GDP) which is in line
The foreign exchange reserves of increased by 563
with Serbias stand-by arrangement with the IMF.
million or 5.3% y/y in December 2009 to 10.6 billion. For
However, the government has recently been criticised for
2009, foreign exchange reserves increased by 2.4
announcing that it might consider unfreezing public sector
billion due in large part to fund transfers under the IMF

loan agreement, allocation of additional SDRs and new all-time low. Since the start of 2010 the NBS has
borrowing from various multilateral lenders (EU, EIB etc). spent over 320 million in interventions.
Under the arrangement with the IMF, Serbia has so far
The decline in bank lending has proved to be relatively
accessed two tranches with a combined value of 1.13
modest, with growth (in domestic currency) easing from
billion. Total international reserves rose to 12.1 billion a
35.1% in December 2008 to 28.0% in June 2009 and now
31% y/y increase for 2009.
16.2% in December. Likewise, credit to businesses has
MONEY & FINANCIAL MARKETS: The Central Bank of eased to 15.3% in December 2009, from 28.0% in March
Serbia (NBS) is now targeting the consumer price index and 42.2% in December 2008. Credit expansion to
as part of a planned transition to a full inflation-targeting households declined to 10.1% in December, from 13.5%
regime with the two-week repo rate functioning as the in June and 23.5% at end-2008. As of end-December
Banks main policy rate. The Bank has lowered its key 2009 Loans-to-Deposits reached 1.27. The government
policy rate by a cumulative 825 bps to 9.5% far in 2009. announced that it would continue its the programme of
The NBS has cited the slower-than-expected growth of providing incentives for the banking sector in the form of
regulated prices in the second and third quarter, reduced state-subsidized liquidity loans. The government will set
risk premiums, the lower inflation outlook, stable aside RSD 3.5 billion ( 35.7 million) versus 1.5 billion
exchange rate, and continued disinflationary effect from which was disbursed in 2009. These additional funds
weaker aggregate demand, all of which lowered the risk would permit the banks to approve an additional RSD 90
for exceeding the inflation target of 8%. In combination billion ( 918 million) in loans.
with the 150 bps cut between November 2009 and
December 2009, the NBS, in attempt to boost the dinar 6. ALBANIA
liquidity, also lowered the mandatory reserve ECONOMIC OUTLOOK: GDP growth decelerated to 4.1%
requirements for dinar deposits from to 25% from 30% y/y in Q3 from 6% y/y and 5.3% y/y in Q2 and Q1 2009
which should boost bank liquidity by RSD 14.5 billion. respectively. The industrial sector saw output contract by
Mandatory reserve requirements for foreign exchange -4.5% y/y in Q3 while the construction sector declined by
deposits was increased to 75% from 70%. -0.7% y/y, a marked improvement from the -9.8% y/y
decline in Q2 2009. These declines were more than offset
Serbia Exchange Rate
103 by the positive growth registered in the communications
RSD vs EUR
sector which increased by 34.3% y/y in Q3, followed by
98 1m the 15.5% y/y increase in transportation sector. Retail
3m
93 trade also registered solid growth of 6.4% y/y (-3.2% y/y
in Q2). The agricultural sector remained weak with growth
88
of 2.8% y/y in Q3. For 2009 as a whole, the government
83
maintains a rather bullish forecast of GDP growth of
around 4.8%, inline with forecasts from the EBRD which
78 see growth of 4.3% y/y in 2009 before easing to 2.0% y/y
73
in 2010. The IMF currently forecasts growth of between
2008 2009 2010 2.0 2.5% for 2009.
Moreover, at the start of January 2010, following The Albanian parliament approved a loan agreement
considerable rise in dinar liquidity in the banking system between the governments of Albania and Saudi Arabia
due to funds received from the IMF, the central bank took with the aim of financing the construction of Shkozet
to selling 17 million with the aim of boosting support for overpass and the water drainage collector in the area.
the Dinar. However, by the end of January, the Dinar hit a The investment is estimated to reach some 8.4 million,
new all-time low against the Euro of RSD 98.8/ despite granted by Saudi Arabian state Fund for Development.
the 89 million intervention of the central bank on the The funds will be geared towards the second phase of the
forex market, which comes on the top of 110 million that project for the Durres overpass. The first phase was
the central bank sold on the interbank market since the financed by Kuwaiti Fund for Arab Economic
start of 2010. The Dinars weakness was largely due to Development.
strong demand for foreign currency driven by higher FISCAL POLICY: The general government budget posted a
energy imports and the repayment of debts to foreign deficit of ALL 64.5bn (EUR 468mn) or roughly -5.6% of
creditors as well as the conversion of funds received from projected GDP during Jan-Nov 2009 and is forecast at -6.9%
the IMF and the EU. The dinar lost 7.6% in nominal terms for 2009 as a whole. The sharp rise in the deficit was largely
against the euro in 2009 in response to which the Central due to a 16.3% y/y increase government spending to ALL
Bank used 656.9 million in interventions in the forex 332.6bn, driven by significant growth in public investments
market in 2009 in a bid to support the currency. More related to several large infrastructure projects. Government
recently the central bank sold 41 million as it intervened revenue increased a modest 2.2% y/y to ALL 268.2bn. The
on the forex market on the 2nd February. Despite the ministry of finance has drawn a second tranche worth
intervention, the dinar slid 0.17% against the Euro to the 100 million from a 250 million syndicated loan. The

funds will be used to finance major road infrastructure negative growth of -9.8% in Jan-Nov 2009. Private sector
projects. The first 100 million tranche was transferred in credit growth remains robust, despite having eased in
May, while the remaining 50 million remains to be 2008. Total credit growth declined to 34.9% in December
withdrawn. For 2010 the general government deficit is 2008 from 50.3% in December 2007. In 2009, private
forecast to decline to around -4.7% of GDP. sector credit growth continued to slow in November to
10.3% y/y from 26.7% y/y reported in May. Credit
INFLATION: Headline CPI inflation increased 3.5% y/y in
expansion to business (which constitutes around 65% of
December, accelerating from 2.8% y/y in November.
total outstanding credit) has slowed to 13.0% in
Food prices increased by 6.8% y/y due to a 42% y/y
September from 30.9% May while credit to households
increase in vegetable prices and a 14% y/y increase in
eased to 5.3% in November from 19.2% in May.
the prices of fruits. In addition, transport services
increased by 4.3% y/y, due to the 11.3% increase in Albania Exchange Rate
motor vehicle prices. Prices for alcoholic beverages and 145
tobacco increased by 4.1% y/y, following the 5.8% y/y LEK vs. EUR
140 1m
increase for tobacco products. For the year as a whole, 3m
6m
average inflation declined to 2.2% y/y in 2009 from 3.4% 135
y/y in 2008, remaining within the 3% 1pp target band set

by the central bank. 130
BALANCE OF PAYMENTS: In 2008, the current account 125
deficit increased by 55.3% y/y to 1.3 billion reaching

14.9% of GDP, up from 11% in 2007. During the first nine 120
2008 2009 2010
months of 2009 the current account deficit increased by
20% y/y to 1 billion or about 12.1% of the full-year GDP. 7. FYROM
This increase happened despite a modest -1.0% y/y
ECONOMIC DEVELOPMENTS: The global economic crisis
improvement in the trade deficit, with merchandise
has had a significant impact on the countrys three
exports having declined by -19.2% y/y to and imports
primary growth drivers, exports, remittances and foreign
declining by -6.3% y/y to The trade deficit declined a
direct investment. So while economic activity remained
modest -1% y/y in Jan-Sep, which was due to the -6.3%
robust in the first nine months of 2008 with GDP growth of
y/y drop in imports. On the other hand, exports were also
5.7% y/y, economic activity began to contract in the final
down by -19.2% y/y which followed the sudden drop in
quarter, which lead to weaker GDP growth of 2.0% y/y in
external demand. The services balance deteriorated by -
the final quarter. Economic activity has continued to
25.8% y/y, down to a 49 million surplus. This was due
weaken in 2009, with GDP growth of -0.9% y/y in Q1,
to the 9.8% y/y growth on the import side. Capital
-1.4% y/y in Q2 and now -1.8% in Q3 2009. Indicatively,
transfers amounted to 662 million in Jan-Sep falling by
private consumption turned negative, registering growth
6.1% y/y. Out of these emigrant remittances accounted
of -3.6% y/y in Q3 from -0.5% y/y in Q2 from 3.5% y/y in
for 581 million also falling by -6.3% y/y. Foreign direct
Q1 2009 and 7.4% in 2008. Likewise, investment
investments have grown by the significant 61.4% y/y to
declined by -24.1% y/y in Q3, -20.8% y/y in Q2 with
565 million during Jan-Sep 2009. The surge was due to
positive growth of 16.8% y/y in Q1 2009 and 18.3% in
the 102 million transfer, which the Czech power group
2008. Exports of goods and services posted growth of
CEZ made in May following finalization of the privatization
-12.8% y/y in Q3 from -9.8% y/y in Q2 while imports of
of power distribution company OSSH. conversely, the
goods and services continued to decline with Q3 growth
account on other investment deteriorated by -23.2% y/y.
of -15.4% y/y from -14.3% y/y in Q2 2009. On the supply
MONEY & FINANCIAL MARKETS: While the risks to the side, industrial output registered growth of -13.4% y/y in
economy arising from the global financial crisis have Q3 and -13.7% y/y in Q2 following the -7.0% y/y drop in
increased, the financial system remains healthy and the Q1. The construction sector saw growth remain in
main macroeconomic indicators are well under control. positive territory at 7.5% y/y in Q3 and 14.4% in Q2 while
Moreover, to ensure confidence in the banking sector the agricultural sector also saw a pick-up in growth to
remained unaffected by developments abroad, the 4.9% y/y in Q3 from 4.3% y/y in Q2 2009. For the fourth
government raised the guarantee of bank deposits to quarter, GDP growth is expected to slow to -1.6% y/y
25,000. The guarantee covers more than 80% of all bank versus a pervious estimate of -1.8% y/y. The IMF has
deposits. This increase represents a 7-fold increase over raised its forecast for GDP growth to -1.3% in 2009 with a
the initial 2,700. During Jan-Nov 2009, private sector strong recovery to 2.0% in 2010 and 5.0% in 2011. The
deposits have increased by 6.1% y/y with deposit growth agency noted that the countrys economic and financial
returning to positive territory in November having conditions have improved and that the risks of instability
registered 4.9% growth in November 2009. Household have decreased. Moreover it expressed the view that
deposits (which account for over 80% of total deposits) FYROM had dealt with the risks from the global economic
have increased by 9.5% during Jan-Nov 2009. Whereas crisis better than many countries in the region due to its
business deposits have seen net withdrawals, registering sound macroeconomic and monetary policies. Likewise,

the World Bank is forecasting GDP growth of -1.3% in an additional 280 million. The Dinar has proven to be
2009 with a recovery to 1.9% in 2010 and 3.8% in 2011. highly volatile in recent months, strengthening to
MKD58.4/1 in mid October 2008, only to decline to
FISCAL POLICY: Due to the combination of a decline in
MKD61.03/1 in mid-May 2009 and is now trading around
revenues and an increase in expenditure, the general
MKD61.7/1 at end-October 2009. The central bank
government deficit increased to 2.77% of projected 2009
reduced its key policy rate by 0.5pps to 7.5%. On the
GDP inline with target. For the year, government
banking front, private sector credit expansion has begun
revenues declined by 7.2% y/y to MKD 128.5 billion ( 2.1
to contract in recent months, from 34.4% y/y in December
billion). The decline in revenues was driven by a 7.6% y/y
2008, credit growth has slowed to 3.5% in December
drop in tax collection to MKD 70.8 billion. Despite various
2009. Credit expansion to businesses (which constitutes
cost-cutting measures, government expenditure increase
59% of total outstanding credit) has slowed from 32.6% in
by 6.1% y/y to MKD 139.4 billion. The current parliament-
December 2008 to 3.8% in December, while household
approved draft 2010 budget foresees a budget deficit of
credit expansion slowed from 32.6% in December 2008 to
MKD10.5 billion or 2.5% of the projected 2010 GDP.
3.1% in December 2009.
FYROM is set to receive 55 million from the European
Union under the instrument for pre-accession (IPA). The 8. UKRAINE
funds will be used to boost employment. The proposed
projects include modernisation of the employment ECONOMIC OVERVIEW: As a consequence of its over
agency, support of the national employment strategy and dependence on commodity exports and external
measures for opening new jobs. An additional 4.1 financing, the Ukraine has been one of the most heavily
million will be spent on cross-border co-operation with affected economies in the region. Matters have not been
Bulgaria. aided by the domestic political instability and the poor
economic policy response to the economic crisis.
INFLATION: Peaking at more than 10.0% during the Indicatively, GDP growth declined by -15.9% y/y in Q3
summer months of 2008, consumer price inflation and -17.5% y/y in Q2 following the -20.3% y/y decline in
averaged 8.3% in 2008, up from 2.2% in 2007. However, Q1 2009. In the third quarter of 2009, the decline in final
by December inflation had eased to 4.1% y/y. In 2009 the consumption accelerated to -13.6% y/y from -10.0% y/y in
main driving factors the decline in inflation were lower Q2 and -8.6% y/y in Q1. Driving this decline was
prices for food, energy and transport. In December 2009 household consumption with growth of -13.9% y/y in Q3
headline CPI inflation eased to 1.6% y/y from 2.3% y/y while the contraction in investment eased, with negative
November 2009 with food prices having declined by growth of -44.5% from -57.8% y/y in Q2. On a positive
-3.4% y/y while services prices decreased by -2.3% y/y. note, the -53.0% y/y Q3 and -53.5% y/y decline in imports
For as a whole 2009, average inflation was -0.8% and is of goods and services facilitated a much needed
expected to increase to around 1.0% in 2010. adjustment of the external balance, with exports of goods
BALANCE OF PAYMENTS: After a near fivefold increase to and services having declined by -42.1% y/y in Q3 and -
13.4% of GDP in 2008, the current account deficit has 32.3% y/y in Q2. From a production perspective,
contracted in 2009. The current account deficit declined agriculture remained the only sector to record positive
by -31% y/y drop to 375 million in Jan-Oct 2009. This growth which accelerated to 8.8% y/y in Q3 from 2.3% in
improvement was driven by the narrowing of the deficit on Q2 and 1.3% in Q1 2009. Conversely, the decline in
the trade account by -13% to 1.2 billion during the first mining output remained negative, with growth of -8.4%
nine months of 2009. Merchandise exports declined by y/y in Q3, -19.6% y/y in Q2 and -16.2% y/y in Q1.
-32% y/y to 1.6 billion, while imports declined by Manufacturing output declined by -18.4% y/y in Q3 a
-25% y/y to 2.8 billion. The services account registered marked improvement from -33.0% y/y in Q2, construction
a 24% y/y increase to 21 million, while the Income declined by -37.9% y/y, the electricity and gas sector by --
account swung from a 9 million surplus in Jan-Oct 2008 15.4% y/y and wholesale and retail trade by -8.4% y/y.
to a deficit of -61 million in Jan-Oct 2009. The surplus High frequency data portend a further decline in
on the current transfers account increased by 6.0% y/y to economic activity in the months to come. For the period
918 million. The financial account registered a -38% y/y Jan-Dec industrial production has declined by -21.3% y/y,
decline to 346 million as FDI declined by -61% y/y to having declined by -18.4% y/y in September alone.
133 million. Portfolio investment registered positive However, data suggest that the deep recession in the
growth with a net inflow of 133 million during Jan-Oct industrial sector has begun to improve as of late, as
2009 versus a net outflow of -42 million during the same output increased by 1.9% m/m in September and 5% m/m
period of 2008. The current account deficit is expected to in October 2009. GDP growth is now expected to decline
decline to -9.5% of GDP in 2009 and -8.2% in 2010. by -14.5% y/y in 2009, before recovering to between 3-
4% y/y in 2010.
MONEY & FINANCIAL MARKETS: The central bank has
confirmed that, in an attempt to stabilise the currency, it FISCAL POLICY: After reaching 1.5% of GDP in 2008, the
has, on more than one occasion, intervened on the FX budget deficit is expected to increase dramatically in
market during the past few months. In Q4 2008 it spent 2009. While the original IMF agreement targeted a
162.3 million, while since the start of 2009 it has spent balanced budget for 2009, the parliament-approved

budget envisaged a 3.0% of GDP deficit (albeit having marginally to $ 3.09 billion from $ 3.12 billion in 2008. The
been based on highly unrealistic macroeconomic financial account showed a substantial reversal, swinging
assumptions). Moreover, despite the government having from a surplus of $ 9.6 billion in 2008 to a deficit of 11.8
taken various steps to raise revenues, the IMF has now billion in 2009. Foreign direct investment declined by -
agreed, after having lowered the countrys growth outlook 55% to $ 4.5 billion from $ 9.9 billion in 2008. The Loans
for this year, to a general government deficit of between and Bonds account show the biggest reversal, swinging
4.0% to 6.0% of GDP. Data for the central government from a surplus of $ 12.3 billion in 2008 to a deficit of $ -9
budget thus far indicate that in 2009, the budget posted a billion in 2009. Likewise, the portfolio account swung from
deficit of UAH 19.866 billion. The consolidated budget a surplus of $ 348 million in 2008 to a deficit of $ -74
recorded deficit of UAH 21.607 billion or around 2.5% of million in 2009. The IMF forecasts that the current
GDP in 2009. However, the general government deficit account deficit will decline to 0.4% of GDP in 2009 and
may rise to a high as 8.6% due to the large fiscal risks 0.2% of GDP in 2010.
implied by the difficult financial situation of Naftogaz (the
MONEY & FINANCIAL MARKETS: Monetary policy has
state run energy company) would amount to 2.6% of
been constrained due to the de facto exchange-rate peg
GDP. Thus far, with an eye to improving the financial
at UAH 7.7/$1. However, the Central Bank was forced to
position of Naftogaz, the government has decided to
abandon the peg after the hryvnia came under intense
capitalize the company and announced an increase in
downward pressure towards the end of 2008. In 2009, the
gas tariffs paid by households and utilities by 20 percent
hryvnya was one of the currencies worst affected by the
as of 1st September and 1st October respectively.
global financial and economic crisis. By the end of
Furthermore, the government announced quarterly price
February 2009 the hryvnya had lost around 45% of its
increases of 20% starting in January 2010 (which,
value against the US dollar since the end of August 2008,
according to the IMF, implies a 1% of GDP savings in
despite NBU intervention and controls. Strong downward
2010).
pressure resumed in August and early September 2009,
Having approved the recent budget deficit increase, the driven by concerns over the IMF programme and
IMF proceeded to transfer $ 3.3 billion as part of the third increased demand from corporates to pay off external
tranche of the standby loan. Transfer of the funds had debt, before the currency stabilised again. With the
been delayed due to negotiations concerning revisions to current-account deficit having declined rather
the economic outlook of the country. In November 2008 dramatically, the hryvnya should receive support in 2010-
the IMF approved the allocation of $ 16.4 billion as part of 11 from a rise in steel prices. The central bank has also
a stand-by loan agreement aimed at supporting the ailing reduced its key policy rate by 175 bps this year and now
economy. The first tranche of $ 4.5 billion was transferred stands at 10.25%. Bank lending continues to slow, from
in November 2008, with the second tranche of $ 2.8 77.6% and 66.6% in 2007 and 2008 respectively, to
billion having been transferred in May 2009. Negotiations 26.6% y/y in September 2009. Lending to households
are still ongoing with regards to the next tranche of slowed to 18.6% in September from 70.1% in December
around $ 2.0 billion. 2008, while lending to businesses slowed to 31.3% in
September from 64.6% in December 2008. Bank deposits
INFLATION: A combination of an overheating economy
have declined by -6.9% y/y in September, down from
and international food and energy prices led average
51.8% in 2007 and 27.7% in 2008. Household deposits
annual CPI inflation to reach an eight-year high of 25% in
decreased by -1.1% y/y in September from 30.2% end-
2008. Since then, the sharp decline in domestic demand,
2008. Business deposits registered -16.3% y/y growth in
combined with lower global prices for food and oil have
September from 24.0% in December 2008.
helped to facilitate the decline in CPI inflation to 15.0%
y/y in September and now 12.3% y/y in December 2009. 9. TURKEY
By end-December 2009, 12 month average inflation had
ECONOMIC OVERVIEW: Economic activity has declined on
eased to 15.9% y/y from 25.2% in 2008. For 2010,
the back of constrained domestic lending, limited foreign
disinflation is forecast to make only modest gains, easing
capital inflows, falling real disposable income and weak
to around 11% for the year as a whole.
external demand. GDP growth slowed to 0.9% in 2008
BALANCE OF PAYMENTS: After nearly doubling to -7.2% of following the -6.2% y/y decline registered in the final
GDP in 2008, the current account deficit contracted by - quarter. The pace of economic contraction accelerated in
85% in 2009, falling to $ -1.9 billion from $ -12.8 billion in 2009 with GDP growth of -3.3% y/y in Q3, -14.3% y/y in
2008. Driving this correction was the -66% decline in the Q2 and -14.7% y/y in Q1 2009. Growth for the first nine
trade deficit which fell to $ -5.3 billion on the back of a - months of 2009 was -8.4% y/y. On the expenditures side,
45% decline in merchandise imports to $ 45.7 billion and private consumption benefiting from tax cuts and
a -40.3% y/y decline in imports to $ 40.4 billion. The various government incentives registered growth of -
surplus on the services account registered an increase of 0.9% y/y in Q3, a marked recovery from the -1.5% y/y
49.7% to reach $ 2.6 billion, while the net outflow on the and -10.2% y/y decline in Q2 and Q1 2009. Investment
income account increased by increased by 49.8% to $ - declined by -18% y/y in Q3 following the -24.6% y/y
2.3 billion and the current transfers account declined decline in Q2. Government consumption increased 5.2%

y/y in Q3, 0.5% y/y in Q2 following the 5.2% y/y surge in higher taxes and base effects. Core inflation which
Q1 2009. Exports of goods and services registered excludes energy, food & non-alcoholic beverages,
growth of -4.6% y/y in Q3, -10.1% y/y in Q2 and -11.2% alcoholic beverages, tobacco products and gold prices
y/y in Q1 while imports of goods and services declined by increased 3.84% y/y in December 2009. For 2010, year
-11.9% y/y in Q3, -20.5% y/y in Q2 and -31.5% y/y in Q1 average inflation is expected to reach 7.8%, reflecting
2009. On a sectoral basis, manufacturing output declined base effects, indirect tax adjustments, a rise in global
by -3.9% y/y in Q3, a marked deceleration from the - commodity prices and a pick-up in aggregate demand.
11.2% y/y and -21.8% y/y decline in Q2 and Q1
BALANCE OF PAYMENTS: After reaching 5.8% of GDP in
respectively. The construction sector continues to bear
2008, a combination of weak import demand and lower
the brunt of the recession, with output declining by -
commodity prices should help to reduce current account
18.9% y/y in Q3, -21% y/y in Q2 and -18.9 y/y decline in
deficit in 2009. During Jan-Nov 2009, the current account
Q1 2009. The contraction in the wholesale and retail
deficit declined by 74.4% y/y to $ 9.9 billion with the trade
trade sector eased to 7.2% y/y in Q3 from 26.4% y/y in
deficit having narrowed by -59% y/y to $ 20.8bn from $
Q1. Meanwhile, output in the agriculture sector increased
50.4bn in Jan-Nov2008. Merchandise exports declined by
by 2.7% y/y in Q3, 6.6% y/y in Q2 and -0.5% y/y in Q1
-25% to $ 99.3 billion while imports declined by -34% to $
2009. The economy is forecast to have improved in the
120 million. The surplus on the services account declined
fourth quarter with the possibility of positive growth,
by -4.7% y/y to $ 16 billion while the deficit on the
bringing GDP to -5.8% y/y for 2009. Supporting this view,
incomes account narrowed by -3.5% y/y in Jan-Nov 2009
industrial production rebounded to 6.4% y/y in October
to $ -6.9 billion. The surplus on the financial account
before declining -2.2% y/y in November 2009. In
declined -93% to $ 2.5 billion from $ 36 billion during Jan-
December output is likely to have shown a sharp increase
Nov 2008, as FDI declined by -60% to $ 5.9 billion from $
in year-on-year terms, given the particularly poor
14.7 billion during the same period of 2008. Net outflows
performance recorded in December 2008. Capacity
of portfolio investment accelerated to $ -2.6 billion from $
utilisation in manufacturing industry in December was
-1.3 billion in Jan-Nov 2008. The IMF currently forecast
69.7% slightly below the November figure of 70.7%, but
that the current account deficit will reach 3.7% in 2010
5pps higher than in December 2008. For 2010 GDP
after having declined to 2.1% of GDP in 2009.
growth is expected to recover to around 2.8%.
MONEY & FINANCIAL MARKETS: The Turkish Central
Fitch placed Turkey s Long-term foreign currency Issuer
Bank has resumed the forex purchase auctions which it
Default Rating (IDR) of BB- and Long term local
suspended in October 2008. The maximum daily volume
currency IDR of BB on Rating Watch Positive (RWP).
in the auctions has been set at $ 60 million. Between the
Fitch also affirmed Turkeys Short-term foreign currency
end of Q2 2008 and Q1 2009 the Turkish Lira depreciated
IDR at B and placed the country ceiling of BB on RWP.
by 57% and 35% vis--vis the Dollar and the Euro. After
Fitch indicated the strong possibility of a ratings upgrade
reaching a low of around TRY 2.35/, the Lira has since
following their end of year review, citing Turkeys relative
recovered and is trading around TRY 2.20/, still around
resilience to the global financial crisis. The agency noted
23% percent above the low of TRY 1.72 reached in
the fact that Turkeys banking sector has not required any
September 2008. In response to the current economic
sovereign support and remains well-capitalised with a low
crisis, the central bank has opted to reduce its key policy
level of non-performing loans and a loan-to-deposit ratio
rate by a staggering 1,025 bps to 6.5% in November 2009
of only 82.
from 16.75% in November 2008. The central bank
FISCAL POLICY: For 2009, the central government budget reiterated its view that the ongoing recovery in economic
recorded a deficit of TRY 52.2 billion ( 24.9 billion) or activity would be gradual and protracted owing to weak
5.5% of GDP, below the official projection of TRY 62.8 external demand and domestic investment and for
billion or 6.6% of GDP. The primary surplus reached TRY inflation to remain at low levels for a prolonged period of
986 million, well below the TRY 33.2 billion of primary time. The central bank also announced that it will
surplus recorded in 2008. Budget revenues increased purchase TRY 8 billion ( 3.6 billion) worth of government
2.6% y/y to TRY 215.1 billion as tax revenues also bonds with a maturity of between one to five years in
increased 2.6% y/y to TRY 172.4 billion in 2009, while 2010. The bonds will be purchased via daily auctions on
expenditures rose 17.7% y/y to TRY 267.3 billion in 2009. Wednesdays and Fridays between Dec 23 2009 and Jun
23 2010, and at each auction the bank will purchase TRY
INFLATION: Consumer price inflation increased by 6.53%
100 million of bonds. Currently holds TRY 8 billion worth
y/y in December 2009 from 5.96% y/y in November,
of bonds in its portfolio which will mature in 2010. The
bringing average annual inflation for 2009 to 6.25%.
bank will continue to hold forex purchase auctions in 2010
Driving the increase in December were food prices which
if liquidity conditions do not change and will purchase up
rose 2.2% m/m while clothing prices declined -2.79%
to $ 60 million. Yilmaz also asserts that the banks base
m/m. Despite the upside surprise in the year-end inflation
scenario assumes there will be no agreement with the
rate it still remained within the target band of 7.5% set by
IMF.
the central bank. In the months ahead, inflation is
expected to increase due to administrated price hikes,

9. ECONOMIC DATA GREECE
(% change unless otherwise noted)
Yearly Data 2004 2005 2006 2007 2008 2009e 2010f
Real GDP Growth 4,9 2,9 4,5 4,5 2,0 -2,0 -1,0
Gross Fixed Total Investments (including stocks) 0,1 -3,6 8,1 4,9 -7,4 -20,2 -4,3
- Residential Investment -1,9 0,0 29,1 -6,8 -29,1 -26,0 -18,8
- Equipment 12,7 -1,0 14,2 9,1 6,3 -25,0 -2,0
Manufacturing production 1,2 -0,8 1,4 1,8 -4,2 -11,2 1,0
Unemployment (percent) 10,2 9,5 8,6 8,0 7,4 9,0 9,9
Employment 0,9 1,5 2,5 1,3 1,2 -1,1 -0,5
Consumer Price Index (year average) 2,9 3,5 3,2 2,9 4,2 1,1 2,2
Unit Labor Cost 1,8 3,7 4,6 3,5 3,9 5,8 1,4
Credit Expansion (Private Sector) 19,5 21,8 19,7 20,0 15,9 4,2 5,0
Government Deficit (as % of GDP) -7,4 -5,1 -2,6 -3,6 -7,8 -12,7 -8,7
Current Account (as % of GDP) -4,5 -6,3 -9,6 -12,4 -12,7 -10,3 -8,0
Source: Official National Accounts, Jan.2010 and Alpha Bank Research
2006 2007 2008 2008 2009 2009-2010

Quarterly Data
IV I (cumulative period)
Economic Activity (period average)
Retail Sales Volume 8,0 2,3 -1,4 -4,0 -9,4 -10,2 (11month 09)
Construction Activity -19,5 -5,0 -17,1 -23,9 -16,3 -28,1 (11month 09)
Industrial Production (Manufacturing) 0,8 1,8 -4,2 -8,5 -11,7 -11,2 (12month 09)
PMI (manufacturing) 52,4 53,7 50,4 43,8 39,0 46,8 Jan-10
Economic Sentiment Indicator 103,0 108,4 88,9 67,8 48,4 76,1 Jan-10
Index of Business Expectations in Manufacturing 101,5 102,8 91,9 76,7 64,9 75,8 Jan-10
Consumer Sentiment Index -33,0 -28,0 -46,0 -56,0 -53,0 -47,2 Jan-10
Credit Expansion (end of period)
Private Sector 21,1 21,5 15,9 15,9 10,8 4,2 Dec-09
Consumer Credit+Other 23,9 22,4 16,0 16,0 10,9 1,8 Dec-09
Housing 26,3 21,9 11,5 11,5 8,7 3,7 Dec-09
Business 17,2 20,6 18,7 18,7 12,2 5,1 Dec-09
Tourism 11,5 23,8 19,7 19,7 13,4 7,8 Dec-09
Prices (end of period)
Consumer Price Index 3,2 2,9 4,2 2,9 1,5 2,4 Jan-10
Core Inflation 2,7 2,9 3,4 3,5 3,2 1,6 Jan-10
Producer Price Index 7,3 4,1 10,0 1,3 -5,2 -11,1 Sep-09
Interest Rates (period average)
Savings 0,98 1,14 1,17 1,18 0,89 0,37 Nov-09
Short-term Business Loans 7,18 7,54 7,61 7,48 6,56 5,60 Nov-09
Consumer Loans (up to 1 year) 10,37 10,39 11,03 11,61 11,82 11,27 Nov-09
Housing Loans (over 10 years) 4,64 4,61 4,80 4,87 4,79 4,70 Nov-09
3 month Euribor 3,08 4,28 2,89 2,89 1,51 0,70 Dec-09
10 year Bond Yield 4,07 4,50 4,80 5,03 5,35 5,80 Dec-09
National Accounts
Real GDP 4,5 4,5 2,0 0,7 -0,5 -1,7 (Q3/09)
Final Consumption 3,9 4,9 2,0 1,1 1,4 1,1 (Q3/09)
Investment 9,2 2,8 -2,5 -1,3 -9,7 -18,6 (Q3/09)
Exports 10,9 1,2 4,0 0,8 -20,9 -21,7 (Q3/09)
Imports 9,7 6,2 0,2 -1,2 -14,9 -16,5 (Q3/09)
Balance of Payments (in mn - Cumulative)
Exports of Goods 16,2 17,5 19,8 19,8 3,7 15,3 (12month 09)
Imports of Goods 51,4 58,9 63,9 63,9 11,4 46,1 (12month 09)
Trade Balance -35,3 -41,5 -44,1 -44,1 -7,7 -30,8 (12month 09)
Invisibles Balance 14,6 13,5 13,2 13,2 0,9 6,1 (12month 09)
Invisibles Balance / Trade Account 41,4% 32,5% 29,9% 29,9% 11,2% 19,8% (12month 09)
Current Account -20,6 -28,1 -30,9 -30,9 -6,9 -24,7 (12month 09)
Direct Investments 0,9 -2,5 1,7 1,7 0,1 1,1 (12month 09)
Portfolio Investments 8,1 17,4 16,4 16,4 15,2 27,1 (12month 09)
Athens Stock Exchange (end of period)
Composite Index 4.394,1 5.123,4 1.786,5 1.786,5 1.684,4 2.048,3 Jan-10
% change 19,9 17,9 -65,5 -65,5 -57,7 15,1 Jan-10
Market Capitalization ASE (% of GDP) 74,1 85,7 27,7 27,7 25,4 32,3 Jan-10
Source: National Accounts, 2007 Official and Alpha Bank Research

10. ECONOMIC DATA SOUTHEASTERN EUROPE
Romania 2006 2007 2008 2009 (e) 2010 (f) Bulgaria 2006 2007 2008 2009 (e) 2010 (f)
Real Economy Real Economy
Real GDP 7.9 6.3 6.2 -7.0 1.5 Real GDP 6.3 6.2 6.0 -5.1 0.3
Private Consumption 12.7 11.9 8.9 -12.0 2.2 Private Consumption 9.5 5.3 4.8 -4.3 -1.0
Government Consumption -4.1 -0.1 -0.3 -1.5 -1.5 Government Consumption -1.3 3.1 0.1 -0.2 -0.2
Gross Fixed Investment 19.9 30.3 19.3 -14.0 1.1 Gross Fixed Investment 14.7 21.7 20.4 -19.0 -5.0
Exports (Goods & Services) 10.4 7.8 19.4 -10.5 3.1 Exports (Goods & Services) 8.7 5.2 2.9 -15.5 -1.0
Imports (Goods & Services) 22.6 27.3 17.5 -22.1 4.0 Imports (Goods & Services) 14.0 9.9 4.9 -20.2 -4.3
Prices Prices
HICP Inflation (Avg) 6.6 4.9 7.9 5.7 3.7 HICP Inflation (Avg) 7.4 7.6 12.3 2.8 2.0
General Government (%GDP) General Government (%GDP)
Overall Balance -2.2 -2.5 -5.5 -7.3 -5.9 Overall Balance 3.0 0.1 1.8 -0.7 0.0
Balance of Payments (% GDP) Balance of Payments (% GDP)
Current Account Balance -10.4 -13.6 -12.3 -4.5 -5.5 Current Account Balance -18.6 -22.5 -22.9 -6.7 -4.9
Cyprus 2006 2007 2008 2009 (e) 2010 (f) Serbia 2006 2007 2008 2009 (e) 2010 (f)
Real GDP 4.1 4.4 3.7 -1.0 0.3 Real GDP 5.2 6.9 5.4 -3.0 1.5
Private Consumption 4.5 6.9 7.0 -0.2 0.2 Private Consumption 7.0 7.5 6.0 -1.2 3.9
Government Consumption 7.4 -0.1 8.7 1.5 3.1 Government Consumption 2.5 2.0 1.0 0.6 1.5
Gross Fixed Investment 10.5 7.6 9.8 -3.0 0.9 Gross Fixed Investment 9.0 8.6 10.0 -3.2 4.1
Exports (Goods & Services) 3.8 7.5 1.1 -8.8 0.7 Exports (Goods & Services) 5.8 5.7 5.4 -7.0 6.0
Imports (Goods & Services) 6.6 11.1 9.9 -12.1 -1.5 Imports (Goods & Services) 8.4 8.0 7.3 -10.0 4.5
Prices Prices
HICP Inflation (Avg) 2.2 2.2 4.4 0.4 2.0 Consumer Price Inflation (Avg) 12.7 6.5 11.7 8.4 5.1
Overall Balance -1.2 3.4 0.9 -6.1 -5.7 Overall Balance -1.6 -1.9 -2.2 -3.2 -4.0
Albania 2006 2007 2008 2009 (e) 2010 (f) FYROM 2006 2007 2008 2009 (e) 2010 (f)
Real GDP 5.4 6.0 6.8 4.0 2.2 Real GDP 4.0 5.9 5.0 -1.3 2.0
Private Consumption - - - - - Private Consumption 6.0 9.8 7.8 -0.5 0.8
Government Consumption - - - - - Government Consumption 1.8 0.4 9.5 -8.4 2.2
Gross Fixed Investment - - - - - Gross Fixed Investment 11.6 13.1 18.8 -10.7 2.4
Exports (Goods & Services) - - - - - Exports (Goods & Services) 14.3 -9.6 -14.0 -12.0 2.8
Imports (Goods & Services) - - - - - Imports (Goods & Services) 10.9 17.4 -4.9 -10.9 1.1
Prices Prices
CPI Inflation (Avg) 2.4 2.9 3.4 2.2 2.0 CPI Inflation (Avg) 3.3 2.8 7.2 -0.8 0.8
Overall Balance -3.2 -3.3 -5.4 -6.9 -4.7 Overall Balance -0.5 0.6 -1.0 -2.8 -2.5
Ukraine 2006 2007 2008 2009 (e) 2010 (f) Turkey 2006 2007 2008 2009 (e) 2010 (f)
Real GDP 7.4 7.7 2.2 -14.5 3.2 Real GDP 6.9 4.6 1.1 -5.8 2.8
Private Consumption 14.1 15.3 6.5 -18.2 -0.8 Private Consumption 4.6 4.6 0.3 -4.9 2.2
Government Consumption 4.9 2.9 2.0 0.5 0.8 Government Consumption 8.4 6.5 1.8 3.2 1.8
Gross Fixed Investment 20.9 24.9 2.5 -42.0 2.3 Gross Fixed Investment 13.3 5.4 -4.6 -20.6 3.1
Exports (Goods & Services) -5.8 2.8 -4.8 -15.4 0.5 Exports (Goods & Services) 6.6 7.3 2.6 -10.4 1.9
Imports (Goods & Services) 8.3 20.2 5.0 -34.4 -1.9 Imports (Goods & Services) 6.9 10.7 -3.1 -19.6 4.8
Prices Prices
CPI Inflation (Avg) 9.1 12.8 25.2 15.9 11.0 CPI Inflation (Avg) 9.3 8.8 10.4 6.1 5.6
Overall Balance -0.7 -1.1 -1.5 -7.0 -4.0 Overall Balance 1.2 -1.0 -2.2 -7.9 -6.8
Current Account Balance -1.5 -3.7 -7.2 0.4 0.2 Current Account Balance -6.0 -5.8 -5.7 -2.1 -3.7
Source: IMF, Economist Intelligence Unit, Central Bank, Eurostat, Alpha Bank Economic Research
This report reflects the opinions of the analysts of Alpha Banks Economic Analysis Division. Any information in this report is based on data obtained from
sources considered to be reliable; Alpha Bank takes no responsibility for any individual investment decisions based thereon.
No part of this publication may be reproduced in any form without the permission of the publisher.
Please address any comments or inquiries to: Michael Massourakis, Group Chief Economist
Economic Research Division, Panepistimiou 43, Athens, 10564 Greece
Tel: (+30) 210-326-2828 Fax: (+30) 210-326-2812
E-mail: dom@alpha.gr Web Site: www.alpha.gr
The next Greece and Southeastern Europe Economic & Financial OutlookEwill be published
CONOMIC in May O
AND FINANCIAL 2010.
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Greece and Southeastern Europe

Economic Research Division

the increasing pension fund deficits caused not only by -7,7

400 Greece United Spain Ireland USA Japan

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

January November 2009.

Diagram 2. Economic sentiment 13%

In the manufacturing industry, the falling trend of

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

countries of SE Europe which imply a reduction of risks of

these countries. Other Construction

substantial improvement in the international economic GDP, 2000 prices 2,0%

2010 is expected to be negative at -1.0%, following a - Private consumption % of GDP

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

GDP in 2008 and 12.3% of GDP in 2007. 10%

Table 2. Greek Balance of Payments ( Billions) 5%

hand the Jan.-Nov.2009 period witnessed a substantial 6000

increase of net capital inflows from foreign residents for 5000

and lending) of 11.5 billion in Jan.-Nov.2009, from a 2000

substantial net inflow of 10.33 billion in Jan.-Nov.2008. 1000

MONEY & FINANCIAL MARKETS: Credit expansion to

GREECE AND SOUTHEASTERN EUROPE

production and retail sales which has remained in

GREECE AND SOUTHEASTERN EUROPE

January, driven by excise-tax related increase which saw 4.1

Driving this correction was the trade deficit which

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

in 2010. Already in January 2010, headline CPI inflation 1.97 1.5

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

motor vehicle prices. Prices for alcoholic beverages and 145

y/y in 2008, remaining within the 3% 1pp target band set

BALANCE OF PAYMENTS: In 2008, the current account 125

deficit increased by 55.3% y/y to 1.3 billion reaching

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

GREECE AND SOUTHEASTERN EUROPE

2006 2007 2008 2008 2009 2009-2010

GREECE AND SOUTHEASTERN EUROPE

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