SUMMARY OF KEY MACROECONOMIC INDICATORS IN SOUTH EAST EUROPE

1. SUMMARY OF KEY MACROECONOMIC INDICATORS IN SOUTH EAST EUROPE

2. Content Overview of Macroeconomic Indicators Overview of Operational Costs in SEE

3. Macroeconomic Framework

4. Moldova: Slowing down because: 1) rate of increase in the value of remittances is likely to slow down, with effects on consumption and investment (remittances are very important in Moldova GDP); 2) worse trade balance (e.g. Russia has a ban on wine; prices of gas will go up) Romania: Slowdown in the expansion of export + weaker agricultural output (due to bumper harvest in 2004 and flooding) Serbia: Slowdown due to 1) weakness of the manufacturing sector (-1.9% in industrial output in first six months of 2005); 2) tightening of fiscal and monetary policyMoldova: Slowing down because: 1) rate of increase in the value of remittances is likely to slow down, with effects on consumption and investment (remittances are very important in Moldova GDP); 2) worse trade balance (e.g. Russia has a ban on wine; prices of gas will go up) Romania: Slowdown in the expansion of export + weaker agricultural output (due to bumper harvest in 2004 and flooding) Serbia: Slowdown due to 1) weakness of the manufacturing sector (-1.9% in industrial output in first six months of 2005); 2) tightening of fiscal and monetary policy

5. Romania: High inflation due to the government policy of implementing a gradual reduction in inflation. Instead of implementing measures which cut drastically inflation, they decided to implement progressive measures to decrease inflation in parallel with the elimination of state subsides and privatisation and the restructuring of the State Owned Enterprises Serbia: The increase in inflation between 2004 and 2005 was due to the implementation of the VAT which resulted in the one-off increase in inflation. By 2006, inflation decreased to roughly 2004 levels and is expected to continue to decrease in the future Moldova: High inflation in Moldova is due to large amount of remittances which hamper monetary policy.Romania: High inflation due to the government policy of implementing a gradual reduction in inflation. Instead of implementing measures which cut drastically inflation, they decided to implement progressive measures to decrease inflation in parallel with the elimination of state subsides and privatisation and the restructuring of the State Owned Enterprises Serbia: The increase in inflation between 2004 and 2005 was due to the implementation of the VAT which resulted in the one-off increase in inflation. By 2006, inflation decreased to roughly 2004 levels and is expected to continue to decrease in the future Moldova: High inflation in Moldova is due to large amount of remittances which hamper monetary policy.

9. In 2005, the import growth rate will significantly decrease thus improving the current account balance, but in Romania and Bulgaria it will still be very high due to strong domestic demand Between 2004 and 2005, the export growth rate will drop significantly in all countries, especially in Bosnia and Herzegovina and Montenegro. The rate will level off in 2006, however, resulting in an improved current account balance for all countries but Bulgaria and Romania due, again, to their strong domestic demandIn 2005, the import growth rate will significantly decrease thus improving the current account balance, but in Romania and Bulgaria it will still be very high due to strong domestic demand Between 2004 and 2005, the export growth rate will drop significantly in all countries, especially in Bosnia and Herzegovina and Montenegro. The rate will level off in 2006, however, resulting in an improved current account balance for all countries but Bulgaria and Romania due, again, to their strong domestic demand

12. Overview of Operational Costs in SEE

13. Cost of Wages in SEE

14. Cost of Utilities in SEE

15. Cost of Real Estate in SEE

16. Cost of Transport in SEE