Bank analysis says Bosnia undergoes vulnerable economic recovery.

By bne IntelliNews July 2, 2010
The recovery of the Bosnian economy has already started, but is still vulnerable to risks of weak exports, an analysis of UniCredit Bank, member of the UniCredit Group Bosnia and Herzegovina, showed. The bank has revised its projections for the country and now anticipates a GDP expansion of 0.5% this year against the previous forecast for a 1% y/y contraction. However, the economic recovery remains quite vulnerable to risks of weaker foreign demand, to take place if the rebound of the country's main trading partners turns out to be not sustainable enough, as the revival of the Bosnian economy is supported only by certain export-oriented sectors like the production of steel, aluminium, textiles, chemicals, furniture and mining, the bank said. Other sectors are still contracting. In addition, domestic demand remains weak and suppressed as suggested by the stagnating imports and the lack of inflationary pressures. Thus, the current account deficit is expected to reach 3.6% of GDP this year against the 6.3% of GDP in the previous forecast. FDI are expected to fully cover the current account deficit in 2011. The economic revival is further constrained by the relatively low credit growth, while the stability and the high capitalisation of the banking sector contribute to the overall favourable macroeconomic environment. Other major risk to the sustainability of the economic recovery include the fiscal policy and the apparent current inability of the government to fulfill the IMF requirements for receiving the next tranche under the 3-year stand-by agreement.

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