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July 2012

Macroeconomic Outlook The World Bank estimates that in six of the countries in the Western Balkans, including Montenegro, economic growth in 2012 will be slower than it was in 2011. The crisis continues to affect activities in industry, tourism and in the construction sector. Industrial production recorded a fall of 5.3 % during the period January-May 2012 in comparison with the same period last year. Major decreases in industrial output were recorded in the areas of electricity production (nearly 50%) and mining and quarrying (nearly 20%). The only increase in output levels was recorded in the manufacturing industry, particularly in the areas of pharmaceutical production and in the manufacture. Tourism During the period January-May 2012 72,031 tourists (of which 83.6% were foreigners) visited Montenegro, thus recording a fall of 3.8% in comparison with the same period last year. The decline was mainly due to a decrease in the number of local tourists. During the observed period, 337,496 nights were recorded, which was a decrease of 2.1% when compared with the same period last year. Budva, Herceg Novi and Ulcinj had the highest number of visitors. Inflation The annual inflation rate, measured by the Consumer Price Index (CPI), during the period January-May 2012 was recorded at a level of 3.5%. Significant price increases were recorded in alcoholic beverages and tobacco (24.6%). From 1 April 2012, new excise taxes will be implemented on coffee, gas and water. This will result in an immediate price increase for these products. According to the latest available international comparisons, Montenegro’s annual inflation rate (3.1%) was above the EU 27 level (2.7%) in April. Employment and Wages According to data from the Employment Agency of Montenegro, at the end of June, there were 29,443 unemployed (13,577 of which were women). Thus the unemployment rate was 12.69%. In May 2012, the gross average salary was €727; the average salary without taxes and contributions was €487. Higher salaries, without taxes and contributions, were recorded in the following sectors: electricity, gas steam and air conditioning supply (€869) and finance and insurance (€855). The lowest salaries were recorded in the trade sector (€334) and in construction (€381). Budget According to the Law on the Budget of Montenegro for 2012, revenue is projected to be €1,210,074,101.60, and expenditure is projected to be €1,252,724,789.74. However, in order to strengthen fiscal stability, the Ministry of Finance has proposed a revision of this budget which envisages a reduction in expenditure and an increase in taxes. Current budget revenue in April 2012 was €98.71 million, thus showing an increase of 10.1% in comparison with same month last year. The increase in revenue was due to the implementation of new excise taxes on coffee and soft drinks, as well as higher excise rates on tobacco and alcohol. Budget expenditure totaled €142.35 million, thus showing an increase of 41.8%. This resulted in the Montenegrin budget showing a deficit of €43.64 million in April. At the end of May, public debt amounted to €1,638.6 million (48.1% GDP). Foreign Direct Investments (FDI) During the period January-April 2012, net FDI inflow amounted to €79. 8 million, just 54.2% of its recorded value in same period last year. - FDI inflow: €121.4 million, mostly in form of sale of real estate (€62.2 million) - FDI outflow: €41.6 million, mostly in form of residents’ investments abroad (€22.7 million)

Business Environment Macroeconomic Outlook Capital Market Banking Sector Privatization and Investments Economic Freedom Business News In the Spotlight Coming up... Graphic 6. CPI-monthly growth rate (base Ø2010) Feb-12, 1

1.0

Aug-11, 0.7

Jan-12, 0.8

Apr-12, 0.5

0.5 Oct-11, 0.2 0.0

May-11, -0.1

Mar-12, 0.4

Nov-11, -0.2

July-11, -0.3 Sept-11, -0.1

Dec-11, -0.2

-0.5 Jun-11, -0.5 -1.0

Graphic 7. Average salary without taxes and contributions (€) May-12 Apr-12 Mart-12 Feb-12 Jan-12 Dec-11 Nov-11 Oct-11 Sept-11 Aug-11 July-11 Jun-11 May-11

EUR 487 EUR 491 EUR 489 EUR 495 EUR 505 EUR 484 EUR 483 EUR 477 EUR 477 EUR 475 EUR 476 EUR 475 EUR 479 460

470

480

490

500

510

Graphic 8. FDI inflow structure (in million EUR) 0.5 22.5 51.2 25.8

External trade The total realized through foreign exchange during the period January-May 2012 amounted to €845.6 million. Total exports totaled €150.4 million, while total imports totaled €695.2 million. The export-import ratio of 21.7% was below last year’s average level (24.9%). Dominant exports in terms of products were: aluminum, mineral fuels/oils/waxes, wood and beverages. The majority of imported good/services also related to mineral fuels/oils/waxes, along with reactors, boilers, machinery and mechanical appliances, electrical machinery and equipment and vehicles.

Companies and banks

Intercompany debt

Real estate

Withdrawal of the capital

(Source: The Central Bank of Montenegro, Monstat, Ministry of finance of Montenegro, Employment Agency of Montenegro)

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