ECONOMIC MONITOR NUMBER: 15 APRIL 2015

Transcription

1 ECONOMIC MONITOR NUMBER: 15 APRIL 2015

2 TABLE OF CONTENTS 1. SUMMARY REAL SECTOR Gross domestic product Industrial production Construction sector Labour market Unemployment Salaries and pensions PRICES AND FINANCIAL SECTOR Prices Financial market Banking sector Stock Exchanges FOREIGN TRADE STATISTICAL ANNEX Table 1: Тhree-month RS Gross Domestic Product, real growth rates (%), y/y Table 2: Тhree-month BiH Gross Domestic Product, real growth rates (%), y/y Таble 3: Rates of change in RS industrial production, in %, y/y Таble 4: Rates of change in BiH industrial production, in %, y/y Table 5: Production in the construction sector, calendar adjusted, in %, y/y Table 6: RS Unemployment Table 7: Average RS net salary, by sector, in BAM Тable 8: Average BiH net salary by sector, in BAM Table 9: Overview of RS inflation trend, measured by Consumer Price Index - CPI Tаble 10: RS Lending interest rates in, in % Table 11: RS and BiH foreign trade in, in 000 BAM... 24

3 ACRONYMS RS BiH BARS IRBRS GDP y/y BAM EU IMF RSIS BHAS Q RSEI BIRS CPI RSPDIF EURIBOR S EUROSTAT p/p Republic of Srpska Bosnia and Herzegovina Banking Agency of the Republic of Srpska Republic of Srpska Investment-Development Bank Gross Domestic Product Year over year (same period last year) Convertible Mark European Union International Monetary Fund Republic of Srpska Institute of Statistics Bosnia and Herzegovina Agency for Statistics Quarter Republic of Srpska Employment Institute Republic of Srpska Stock Exchange Index Consumer Price Index Republic of Srpska Pension and Disability Insurance Fund European Interbank Offered Rate Securities Statistical Office of the European Union Percentage point

4 LIST OF CHARTS AND TABLES Chart 1: RS GDP growth rates (y/y), in %, Chart 2: Comparative review of GDP rates (y/y), in % Chart 3: Growth rates of selected economic sectors in RS ( y/y), in % Chart 4: Change rates of RS industrial production (y/y), in % Chart 5: Comparative review of industrial production growth rates (y/y), in % Chart 6: Change rates of RS industry sectors (y/y), in % Chart 7: Production in construction sector (y/y), in % Chart 8: Production in construction sector by quarter in (y/y), in %, Chart 9: Chart 10: Chart 11: Chart 12: Chart 13: Chart 14: Number of unemployed persons in RS, by year Breakdown of RS unemployment figures in, by month Average RS net salary, by year, in BAM Average net salary growth by sector in RS Average RS pension, by year, in BAM Annual inflation rate in RS and BiH - Consumer Price Index (CPI) in period January to December, by month, y/y Chart 15: Annual inflation rate in the region - Consumer Price Index (CPI), December 2013 and Chart 16: Retail trade turnover in RS in period January - December (chain index) Chart 17: Lending interest rates in RS, in % Chart 18: Chart 19: Chart 20: Chart 21: Total loans in RS, in million BAM Total deposits in RS, in million BAM Value of Republic of Srpska Stock Exchange Index BIRS Total turnover at Banja Luka Stock Exchange in 2013 and, by month, in BAM Chart 22: Structure of total turnover at Banja Luka Stock Exchange, in Chart 23: Average monthly value of market capitalization at Banja Luka Stock Exchange, in 2013 and Chart 24: Structure of IRBRS investments in securities, by sector, as of 31 December, in % Chart 25: Chart 26: RS foreign trade activity in, by month, in 000 BAM BiH foreign trade activity in, by month, in 000 BAM Table 1: RS employment growth rates, by sector Table 2: Overview of IRBRS loans by credit line as of 31 March 2015

5 1. SUMMARY Natural disasters and floods which hit RS and the neigbouring countries had a direct impact on the shaping of total results of domestic economy which grew at an inter-annual rate 0.2% in. Namely, after a growth of 0.5% in Q1, RS GDP got a negative sign in Q2 (-1.0%). During Q3 and Q4, the overall RS economic activity grew at a rate of 0.1% and 1.4% respectively. In, RS industrial production achieved positive results. Namely, a growth in foreign demand, triggered primarily by domestic manufacturing sector (+5%), positively reflected on the overall industrial production which recorded a rise of 0.7%. The increase in demand coupled with production growth in the observed period resulted in the RS export growth of 3.5%. On the other hand, RS import grew by 8.5% which ultimately resulted in an increase of 7.0% in RS foreign trade volume in at an inter-annual level. Owing to a constant growth in the value of performed civil engineering works, was also marked by a trend of growth in the total RS construction activity (+9.4%). Also, there were evident positive results on the domestic labour market; the average number of unemployed persons registered by the RS Employment Institute decreased by 3.6% with a simultaneous increase of 1.3% in the number of persons who were deleted from the records due to employment. In the period January to December, the average RS net salary achieved a nominal growth of 2.1%, while the value of average pension grew at an inter-annual rate of 4.7%. Concurrently, under the influence of decrease in price of consumer goods, a deflation of 1.2% was recorded in RS. A moderate contraction of lending interest rates was evident on the RS financial market during ; interest rates reduced by 0.59 pp on short-term loans and by 0.28 on long-term loans in December as compared to their level at the beginning of the year. In such circumstances, total loans in RS reached the level of BAM 5.1 billion at the end of September (+6.5% y/y), while total deposits in banks amounted to BAM 5 billion with an inter-annual growth rate of 9.4%. Due to openness and high extrovert orientation, the main reference for the domestic economic trends will continue to be trends and developments in the neighbouring countries and the EU, i.e. major RS and BiH foreign trade partners. Expecting a continuation of positive trends in the neigbouring countries as well as envisaged reform measures within the Еconomic Policy of the Republic of Srpska for 2015, the projections of the RS Government are that domestic economy will grow at a rate of 1.9% during 2015, while the IMF forecast for the BiH level is even more optimistic and it stands at 3.5% y/y. 1

6 2.1 Gross domestic product 2. REAL SECTOR During, the overall RS economic activity grew at a real rate of 0.2% at an inter-annual level (see Chart 1). Thus, the impact of production growth in the manufacturing sector (+5.9%) and export (+3.5%) on the total economic activity was neutralised by floods and other natural disasters which hit RS and the neighburing countries in May and August last year. Chart 1: RS GDP growth rates, y/y, % 2,5 2,0 1,5 1,0 0,5 0,0-0,5-1,0-1,5 1,9 0,2-1, Observed in the regional context, it is evident that the neighbouring countries achieved mixed economic results during (see Chart 2). Thus Serbia, Croatia and Italy recorded an inter-annual GDP contraction, while GDP growth was observed in Slovenia and the EU28. Especially encouraging, in view of the domestic economy, is a gradual recovery of economic activity in the EU, which after contraction in 2012 (-0.5%) and stagnation in 2013, achieved a growth of 1.3% in y/y. Namely, positive economic developments on our export markets, through a rise in demand, income transfer and increase in possibilities of capital investments positively reflected on the overall economic and social situation and trends in RS and BiH. Chart 2: Comparative review of GDP rates (y/y), in % 4,0 3,0 2,0 1,0 0,0-1,0-2,0-3,0-4,0-0,5-1,1-1,2-1,0-2,2-2,8-2,6 2,5 2,6 1,9-0,9 0,0-1,0-1, RS BiH Serbia Croatia EU28 Italy Slovenia 0,2 1,4-1,8-0,4 1,3-0,4 2,6, BHAS, Statistics Institute of Serbia and Eurostat The key industry sectors which make up over 1/3 of the total RS GDP, 1 achieved mixed results during. Namely, sectors of manufacturing industry and trade, transport and catering achieved 1 Sectors of agriculture, forestry and fishing (9.8%), manufacturing (9.2%) and trade, transport and catering (16.4%). 2

7 production growth while sector of agriculture, forestry and fishing recorded a contraction (see Chart 3). A similar trend was registered at the BiH level: the agricultural sector achieved a production contraction of 7.7%, while sectors of manufacturing industry and trade grew at an inter-annual rate of 1.8% and 5.2% respectively. Chart 3: Growth rates of selected economic sectors in RS (y/y), in % 15,0 10,0 5,0 0,0-5,0-10,0 10,8 6,5 5,9 0,7 1,2 1,1-4,5-7,9-5, Agriculture, forestry and fishing Manufacturing Wholesale and retail trade; Transport and storage; Hotels and restaurants The production growth in the manufacturing sector was primarily led by a gradual recovery of foreign demand for domestic products. As a result, the majority of manufacturing areas accomplished a production growth in the period January to December, and the following sectors were most prominent: manufacture of rubber and plastic products (+35.6%), manufacture of clothes (+15.4%), manufacture of leather and leather products (+11.1%), manufacture of chemicals and chemical products (+14.9%), manufacture of furniture (+14.4%) and manufacture of food products (+6.2%). On the other hand, unfavourable weather conditions (lack of precipitation at the beginning of the year and floods during Q2 and Q3) as well as relatively high growth base in 2013 conditioned an inter-annual contraction of the agricultural production during. Due to openness and high extrovert orientation, the main reference for the domestic economic trends will continue to be trends and developments in the neighbouring countries and EU, i.e. major RS and BiH foreign trade partners. Expecting a continuation of positive trends in the neigbouring countries as well as envisaged reform measures within the Еconomic Policy of the Republic of Srpska for 2015, the projections of the RS Government are that the domestic economy will grow at a rate of 1.9% during 2015, while the IMF forecast for the BiH level is even more optimistic and it stands at 3.5% y/y. 2.2 Industrial production The RS industrial production grew by 0.7% at an inter-annual level in (see Chart 4). Namely, besides the evident growth of foreign demand and export activity, 2 floods and natural disasters during May and August primarily determined the production results of domestic industrial capacities. 2 RS export grew by 3.5% y/y in. 3

8 Chart 4: Change rates of RS industrial production (y/y), in % 6,0 4,0 4,1 2,0 0,0 0,7-2,0-4,0-6,0-4, Observed in the regional context, it is evident that saw an inter-annual contraction of industrial production in Serbia and Italy, while other monitored economies registered modest production results (see Chart 5). In the same period, industrial growth of 1.0% was achieved at EU 28 level, which interrupted a falling trend of industrial activity in 2012 and ,0 6,0 4,0 2,0 0,0-2,0-4,0-6,0-8,0-4,2-5,2 Chart 5: Comparative review of industrial production growth rates -2,2-0,4-0,5-2,2 4,1 6,7 5,8-5,4-6,4-6, , BHAS and Eurostat In the context of results of the RS main industrial product groups in, it is evident that only energy production recorded an inter-annual decrease of 7.5%, while other groups of products achieved growth, namely: intermediate products 3.3%, capital products 8.4%, durable consumer goods 11.6% and non-durable consumer goods 5.2%. During last year, the RS industrial areas achieved mixed production results. Namely, unlike the manufacturing industry which continued with expansion from the previous period, sectors of mining and quarrying and electricity, gas and steam and air conditioning supply recorded an inter-annual drop in the production activity (see Chart 6). -1,9 0,2-0,5-1,4-3,1 RS BiH Serbia Croatia Germany Italy Slovenia EU 28 0,7 0,1 1,3 1,3-0,8 1,7 1,0 6,0 4,0 2,0 0,0-2,0-4,0-6,0-8,0-10,0-3,7-3,9 Chart 6: Change rates of RS industry sectors (y/y), in % -4,8 4,4 1,8 4,2 5, Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply -3,3-9,0 4

9 A similar trend of production results was evident at the BiH level; manufacturing industry had a production growth of 3.8% while the area of mining and quarrying and electric energy sector saw a contraction of 2.1% and 9.6% respectively. The increase in the foreign demand for products of the RS manufacturing industry 3 was the primary instigator of domestic manufacturing capacities. The production growth was recorded in majority of manufacturing areas and according to the level of achieved growth the most prominent are as follows: manufacture of rubber and plastic products (+35.6%), manufacture of other non-metallic mineral products (+16.7%), manufacture of chemicals and chemical products (+14.9%), manufacture of furniture (+14.4%) and manufacture of food products (+6.2%). A bad hydrological situation in Q1, as well as floods in May and August resulted in the reduced production in the area of electricity, gas and steam and air conditioning supply in. The fall in the production in this sector directly reflected on its export results (-33.6%), but also physical volume of production in domestic mines which was decreased by 3.3% at an inter-annual level (indirectly on the overall results of the sectors of mining and quarrying). 2.3 Construction sector During, an inter-annual production growth of 9.4% was recorded in the construction sector (see Chart 7). 4 In the same period, the sector of building construction grew at a rate of 6.4% and civil engineering at a rate of 9%. 15,0 Chart 7: Manufacturing in construction sector (y/y), in % 10,0 5,0 0,0-5,0 2,9 9,4-10,0-8, Observed quarterly, it is evident that construction activity recorded positive growth rates in all quarters of (see Chart 8). However, after a relatively high growth of activities in Q1 and Q2, followed by a slowdown in Q3, a rising trend was continued during the last quarter. 3 In, the manufacturing sector achieved export growth of 8.2% y/y. 4 Arithmetic mean of quarterly growth rates. 5

10 Chart 8: Production in construction sector by quarter in (y/y), in % 25,0 20,0 15,0 10,0 5,0 0,0-5,0-10,0 19,6 14,9 23,5 13,0 10,9 5,1 3,0 5,0 2,6 4,5 0,8-3,9 К1 К2 К3 К4 Total Buildings Civil engineering In, building construction recorded slightly smaller production results as compared to civil engineering which therefore ensured a higher contribution to the overall growth in the RS construction activity. Unfavourable weather conditions and disasters significantly reduced the production results of companies, i.e. their ability and willingness to invest in the business expansion. On the other hand, continued works on the construction of Banja Luka Doboj highway considerably affected the employment of construction industry, encouraging the civil engineering and the whole domestic construction sector. The dominance of civil engineering sector over building construction in is also demonstrated in the number of construction permits. Namely, in the period January to December, the number of issued permits for building construction was lower by 2.7% at an inter-annual level while 16.8% more permits were issued for civil engineering works in the observed period. Also, in terms of building construction, there was a visible recovery of its housing segment where 6.3% more building permits were issued, while combined negative effects of the economic crisis and consequences of natural disasters during months of May and August resulted in a decreased nonhousing construction as 15.7% less permits were issued. In, the number of housing units planned for construction is higher by 44.9%, while the total usable area of the aforementioned is higher by 31.2% at an inter-annual level. 2.4 Labour market Unemployment The trend of improvement of the RS labour market indicators continued until the end of. According to data of the RS Employment Institute, there were 145,919 unemployed persons recorded on average in the period January to December which is by 3.6% less than the average in 2013 (see Chart 9). Concurrently, the average number of the unemployed in BiH decreased at an inter-annual rate of 0.5% and stood at 549,607 persons. 6

11 Chart 9: Number of unemployed persons in RS, by year Source: RSEI and IRBRS calculations Observed by month, the number of unemployed persons recorded by the RS Employment Institute was constantly decreasing (see Chart 10). In, the number of job seekers was reduced by 7, Chart 10: Breakdown of RS unemployment figures in, by month I II III IV V VI VII VIII IX X XI XII Source: RSEI An evidence to positive developments on the labour market are data of the internationally comparable Labour Force Survey, according to which the unemployment rate in RS in decreased by 1.3 pp in comparison to the rate in 2013 and it stood at 25.7%. A mild recovery of the economy in the EU countries positively reflected on the decrease in the level of unemployment in these countries. Thus, in December, the unemployment rate in the EU28 amounted to 9.9% which represents a decrease of 0.7 pp at an inter-annual level, in the eurozone 11.4% (-0.4 pp) and Croatia 16.4% (-0.7 pp). 6 The decrease in the number of unemployed persons in RS was followed by an increase in the number of persons who got employment during the year. The average number of the employed in September amounted to 243,102 persons which is higher by 1.3% as compared to March. Table 1 shows an overview of economic activities with the highest relative participation in the overall RS employment level as at end of Q3 and the corresponding growth rates. 5 The unemployment figure as per RSEI records amounted to 150,193 in January, while in December it stood at 142,675 persons. 6 In June 2013, the unemployment rate in the EU amounted to 10.9%, eurozone 12.0% and Croatia 17.5%. Source: EUROSTAT 7

12 Table 1: RS employment growth rates, by sector Sector Employment growth, IX /III, у % Share in total employment figure, IX, у % Manufacturing Wholesale and retail trade, repair of motor vehicles and motorcycles Public administration and defence; compulsory social security Education Health care and social work activities Transport and storage Construction In the first nine months of, the increase in the RS employment level was recorded in 15 out of 19 economic sectors in total. Among others, these are manufacturing (+1.0%) and wholesale and retail trade, repair of motor vehicles and motorcycles (+1.6%) which simultaneously had the highest relative share in the total RS employment level (around 40%). Although positive trends were recorded, labour market is still characterized by a relatively high unemployment rate, which is a problem faced by national economies in the regional and wider global context. Thus further recovery of this market in domestic conditions will be largely determined by the level of the economic upturn. Also, the implementation of measures defined by the RS Economic Policy for 2015 will be favourable for the overall stabilisation and long-term sustainable recovery of the labour market Salaries and pensions During there was an evident increase in the average RS income. In the period January to December, the average RS net salary amounted to BAM 825 (see Chart 11), which is, at an inter-annual level a nominal increase of 2.1%. In circumstances of deflationary trends, a real net salary growth amounted to 3.3%. 7 Chart 11: Average RS net salary, by year, in BAM Consumer price index for the period I-XII /I-XII 2013 amounted to 98.8, i.e. a deflation of 1.2% was registered. 8

13 Observed by sector, majority of sectors saw a growth in net income ranging from 0.7% to 6.7%. The highest rates of growth were recorded in the following sectors: information and communication; professional, scientific and technical activities; and public administration and defence; compulsory social security (see Chart 12). Chart 12: Average net salary growth by sector in RS ,7% 6,0% 5,5% Information and communication Professional, scientific and technical activities Public administration and defence; compulsory social security Net salary I-XII 2013 Net salary growth I-XII /I-XII 2013 The RS Government s decisions, according to which salaries of public sector employees were adjusted to a higher level, ranging from 5% to 15% in mid-2013 and beginning of, had positive effects on the Republican average of earnings. 8 After RS pension adjustments in the previous period, 9 the value of average pension in reached the level of BAM 333 which is an increase of 4.7% at an inter-annual level (see Chart 13). Chart 13: Average RS pension, by year, in BAM Source: RSPDIF and IRBRS calculations 8 On 1 July 2013, the RS Government adopted the Decision to increase salaries of budget beneficiaries by 5%. The Decision to raise salaries of budget beneficiaries with secondary level education to 2008 level has been in force since 20 February. The Decision refers to over 14,000 budget beneficiaries, while salary increase ranges between 5 and 15%. Source: RS Government. 9 As of 1 January, on the basis of extraordinary adjustments, pensions in RS were raised by 2%. Subsequently, starting from 1 October, pensions of all beneficiaries were adjusted and raised by additional 2% Source: RSPDIF. 9

14 3. PRICES AND FINANCIAL SECTOR 3.1 Prices Until the end of, Republic of Srpska was in a deflation zone. In the period January to December, the inter-annual deflation rate amounted to 1.2%, while at the BiH level, the consumer price index recorded a decrease of 0.9%. If monthly data are observed, it is visible that there was weakening of deflationary pressures in the other part of the year, both in RS and whole BiH (see Chart 14). 100,5 100,0 Chart 14: Annual inflation rate in RS and BiH - Consumer Price Index (CPI) in period January to December, by month, y/y 99,5 99,0 98,5 98,0 97,5 I II II IV V VI VII VIII IX X XI XII RS BiH and BHAS Despite extremely expansionary monetary policy of the European Central Bank, the EU countries saw a continuous drop in inflation. In December, majority of countries recorded an inter-annual deflation which amounted to 0.1% in the EU28 and 0.2% in the eurozone (see Chart 15). Decrease in prices in the EU has a significant impact on the domestic inflation, given the high level of export dependence of RS in comparison to other member countries. 10 Chart 15: Annual inflation rate in the region - Consumer Price Index (CPI), December 2013 and 102,0 101,0 100,0 99,0 98,0 98,5 99,2 98,8 99, ,8 100,7 99,9 99,8 99,9 101,2 100,1 99,1 98,0 100,5 99,9 97,0 96,0 RS BiH EU Eurozone Italy Germany Bulgaria Croatia XII 2013 XII, BHAS and EUROSTAT 10 In the period January to December, 40.3% of RS import originates from the EU countries. 10

15 In, consumer goods prices, except for tobacco price, 11 mostly contributed to a decrease in the general level of prices in RS. The drop in prices was recorded in the following categories: food (-2.6%), non-alcoholic beverages (-5.3%), alcoholic beverages (-0.5%), clothes (-5.6%), footwear (- 10.2%). Concurrently, a decrease in prices of fuels on the world market (primarily oil) reflected on the transportation costs, which are lower by 1.2% at an inter-annual level. Besides the fall in general price level during, the domestic demand did not follow this dynamics since it demonstrated a high level of volatility. Observed by month, the value of retail trade in the period January to December fluctuated in the range of -25.0% to 25.4% (chain indices) (see Chart 16). Chart 16: Retail trade turnover in RS in period January December (chain index) 30,0 20,0 10,0 0,0-10,0-20,0-30,0 25,4 12,9 10,5 9,2 7,6 2,5 I II III IV V VI VII VIII IX X XI XII -7,0-6,0-2,7-11,1-14,2-25,0 According to IMF forecasts, stabilisation of price trends is expected on the domestic market and projections for BiH are that 2015 will end with inflation rate of 1.5%. In view of that, it is necessary to have in mind that, as in the previous period, the inflationary trends in RS will depend to a great extent on developments on the world market, primarily on the EU market. 3.2 Financial market Banking sector Lending interest rates of the RS banking sector achieved an almost negligible decrease during, with moderate oscillations. The interest rate on short-term loans amounted to 6.08% in December which is by 0.59 pp less than the rate in January. Concurrently, the value of interest rate on long-term loans amounted to 6.95% with decrease of 0.28 pp (see Chart 17). 11 In the period January to December, the tobacco price was higher by 9.2%, due to introduction of additional excise taxes. 11

16 Chart 17: Lending interest rates in RS, in % 9,00 8,00 7,00 7,23 7,28 7,80 7,56 7,26 6,77 7,32 6,94 7,18 7,57 7,25 6,95 6,00 5,00 6,67 6,47 6,49 6,44 6,61 6,01 6,08 6,11 6,14 6,08 5,75 5,8 I 14 II 14 III 14 IV 14 V 14 VI 14 VII 14 VIII 14 IX 14 X 14 XI 14 XII 14 Short-term loans Long-term loans Source: BARS By pursuing an expansionary monetary policy in, the European Central Bank reduced its reference rate to only 0.05% in order to spur economic growth and eliminate risks from a threatening deflation in the eurozone. 12 Concurrently, the value of the Euro Interbank Offered Rate EURIBOR is still at a low level with a tendency of further decline. As of 31 March 2015, six month EURIBOR stood at 0.087% which is lower by percentage points as compared to its value as at end of It is evident that, in the observed period, the domestic interest rates were not influenced by interest rate trends on the international financial markets, although EURIBOR is used as a base interest rate in a large number of contracts with the variable interest rate. At the end of Q3, with an inter-annual growth of 6.5%, total loans in RS amounted to BAM 5,054.3 million (see Chart 18). The largest share in growth of lending activity originates from growth in retail loans amounting to 9.9%, while, in the same period, corporate loans almost stagnated at an inter-annual level (-0.03%). Namely, the slowdown in economic activity caused by natural disasters as well as decelerated export growth had an impact on the lending activity of the domestic economic entities Chart 18: Total loans in RS, in million BAM 5.054, , , Source: BARS 12 In June, the European Central Bank adopted a decrease of the reference interest rate from 0.25% to 0.15%, and in September to 0.05%. Source: 13 As of 31 December 2013, the six-month EURIBOR stood at 0.389%. Source: 14 As of 30 September, loans to private enterprises participated with 41%, while loans to individuals had a share of 38% in the structure of total RS loans. Source: Report on Banking System of the Republic of Srpska for period 1 January to 30 September. 12

17 Provision of loans in RS was greatly strengthened by lending activities of the RS Investment- Development Bank (IRBRS). As of 31 March 2015, IRBRS provided a total of BAM 1,436.5 million (see Table 2). Table 2: Overview of IRBRS loans by credit line as of 31 March 2015 Credit lines Amount in BAM CL for start-up activities 3,576, CL for micro-business in agriculture 35,234, CL for agriculture 79,718, CL for entrepreneurs and enterprises 501,046, Housing loans 294,387, CL for municipalities 35,825, Loans to demobilized soldiers 5,820, Loans for SMEs (EAF) 68,681, Loans for SMEs (EIB) 97,783, Loans to enterprises 40,561, Loans for agriculture and agricultural processing 41,924, Loans for agriculture and agricultural produce processing industry 22,861, Loans for healthcare facilities 10,000, Loans for legal entities nominated by the RS Government 21,600, Projects implemented through RSDEF and RSHF 177,466, TOTAL 1,436,486, Source: IRBRS By maintaining continuity of its lending and the overall investment activities, in conditions of limited availability of finances and non-liquidity of the business and population sectors, IRBRS retained its position of the most important financier of the domestic economy. Thus, according to the data of the RS Banking Agency, loan portfolio of the banking sector was largely financed out of IRBRS s funds. As of 30 September, in the structure of RS banks loan sources of finance, 15 loans originating from the domestic sources, which were fully financed out of IRBRS funds, participated with 73%. 16 The deposits in the RS banking sector recorded a constant growth. As at end of 30 September, total deposits amounted to BAM 4,963.8 million which is higher by 9.4% as compared to the same period last year (see Chart 19). 15 Loans are an item in the liability structure of the RS banking sector (12% share as of 30 September ). Other liability items are: deposits (71%), borrowings (0%), subordinated debts (1%), other liabilities (2%), value adjustments and reserves required for potential loss (1%) and capital (13%). Source: Report on Banking System of the Republic of Srpska for period 1 January to 30 September. 16 Out of the total number of loans taken by the RS banks, 73% belongs to loans originating from domestic sources (IRBRS), 17% loans from foreign banks, 8% loans from international funds and 2% loans from other sources. Source: Report on Banking System of the Republic of Srpska for period 1 January to 30 September. 13

18 Chart 19: Total deposits in RS, in million BAM , , , Source: BARS The most important item in the structure of deposits as at end of Q3, are deposits from individuals with 49% share and inter-annual growth of 15.9%. Along with individual deposits, a considerable increase in the observed period was recorded in the case of deposits of governmental institutions 25.3% and deposits of private enterprises 25.4% Stock Exchanges During the first half of, the Republic of Srpska Stock Exchange Index BIRS saw a downward trend, while in the other part of the year, there was a gradual recovery and increase in its value (see Chart 20). As at end of, the BIRS value amounted to points which is by 12.1 point (1.6%) lower than its value at end of Chart 20: Value of Republic of Srpska Stock Exchange Index BIRS 760,0 740,0 720,0 700,0 680,0 660,0 743,4 742,7 744,1 696,9 712,5 695,3 683,4 710,3 721,1 717,0 731,6 717,3 731,3 640,0 Source: Banja Luka Stock Exchange During, there were 22,654 transactions performed on the Banja Luka Stock Exchange with total turnover of BAM million which is higher by 56.1% than the results achieved in In the same period, the average value of a transaction amounted to almost BAM 26 thousand or 111% more than its average from the previous year. 17 As of 30 September, deposits to governmental institutions participated with 11% and deposits to (of) private enterprises participated with 16% in the structure of total RS deposits. Source: Report on Banking System of the Republic of Srpska for period 1 January to 30 September. 14

19 The domestic capital market is characterized by an increased monthly volatility in terms of value of achieved turnover during (see Chart 21). Namely, a rise in the turnover on the Banja Luka Stock Exchange in April, June, September and December is the result of successful implementation of the public offering of the Republic of Srpska bonds. 18 Besides, RS successfully completed ten issues of treasury bills which indicates that the liquidity of the domestic capital market in was considerably conditioned by the achieved turnover on its debt segment. Chart 21: Total turnover at Banja Luka Stock Exchange in 2013 and, by month, in BAM I II III IV V VI VII VIII IX X XI XII 2013 Source: Banja Luka Stock Exchange In the structure of achieved turnover on the Banja Luka Stock Exchange in, public offerings of bonds and offerings of treasury bills participated with 61.2% which is due to a higher reliance of financing of the public demand on the domestic sources (see Chart 22). Chart 22: Structure of total turnover at Banja Luka Stock Exchange, in 29,28% 0,14% 13,99% Regular trading - shares Regular trading - bonds Regular trading - treasury bills 31,96% 3,45% 15,89% Block trade Auction for a package of shares Public offering - shares Public offering - bonds 1,03% 3,50% 0,76% Public offering - treasury bills Takeover Source: Banja Luka Stock Exchange The value of market capitalization as at end of reached the level of BAM 4.4 billion and it is higher by 7.5% at an inter-annual level. Observed on a monthly level, the value of market capitalization in the period March-June was below level in 2013, having in mind that as of beginning of Q3 there has been an evident growth of its value. (see Chart 23). 18 Bonds worth BAM 65,000,000 were issued in April, BAM 40,420,000 in June, BAM 30,693,000 were issued in September and BAM 51,390,000 were issued in December. Source: Banja Luka Stock Exchange 15

20 Billion BAM Еconomic Monitor 15 Chart 23: Average monthly value of market capitalization at Banja Luka Stock Exchange, in 2013 and, in billion BAM 4,5 4,4 4,3 4,2 4,1 4 3,9 3,8 3,7 I II III IV V VI VII VIII IX X XI XII 2013 Owing to its investment activities in the past, IRBRS has been recognized as one of the most important institutional investors on the domestic capital market. Until the end of, a total of BAM million was invested in securities of issuers from the Republic of Srpska, according to the sectoral structure shown in Chart 24. Chart 24: Structure of IRBRS investments in securities, by sector, as of 31 December, in % 10,2 35,1 Corporate sector 36,7 Municipalities Financial sector 18,0 Securities of RS issuers An evidence to the statement that IRBRS is one of the key institutional investors on the capital market of the Republic of Srpska is the fact that an average value of individual purchase transaction of the Bank amounted to almost BAM 6 million during the period 2008 to, while total investments in securities (purchase and sale) accounted for about 16% of the achieved turnover on the Banja Luka Stock Exchange. Thus, IRBRS, through its investment activities, ensured a positive contribution to the overall process of development and enhancement of the domestic capital market, primarily through differentiation of the sources of finance in the Republic of Srpska and maintaining the liquidity of the market owing to increase in the turnover volume. 16

21 4. FOREIGN TRADE The growth in the RS foreign trade activity accelerated during. Namely, the RS foreign trade amounted to 7% y/y in the observed year which is higher by 3 pp than the achieved growth in A higher trade volume was achieved owing to export growth of 3.5% and import growth of 8.5%. In such foreign trade developments, the export-import ratio amounted to 54.5% as at end of (see Chart 25). Chart 25: RS foreign trade activity in RS in, by month, in 000 BAM I II III IV V VI VII VIII IX X XI XII export import deficit A similar trend of foreign trade activity was recorded at the BiH level. Namely, due to export growth (+3.6%) and import growth (+6.8%) total volume of BiH foreign trade increased by 5.7% during at an inter-annual level. The export-import ratio amounted to 53.6% as at end of and it is lower by 1.6 pp than its value as at end of 2013 (see Chart 26) Chart 26: BiH foreign trade activity in, by month, in 000 BAM I II III IV V VI VII VIII IX X XI XII export import deficit Source: BHAS A more dynamic import growth as compared to export resulted in the inter-annual increase of the RS deficit in goods in, which, as at end of the year amounted to BAM 2.2 billion or 14.7% more than the level in However, if we have in mind that the highest import growth was recorded in the category of machinery and transport equipment (+53.4%), which are intended for carrying out business activities, it is realistic to expect a positive contribution of the achieved import to the domestic economic growth. If, in terms of economic activity, the import of machinery is seen economically acceptable then it is not the case of an increased trade deficit in the food sector, especially taking into account the 17

22 domestic comparative advantages in this area. Namely, in RS imported food and live animals in the amount of BAM 650 million, registering in that way a trade deficit of BAM 450 million. 19 Also, due to unfavourable weather conditions there was an interruption of the long positive trend of growth in exports of food products from RS. 20 In the same period, the trade surplus was registered only in areas of inedible crude materials, except fuel, as well as miscellaneous manufactured articles. 21 Observed according to economic grouping of the countries it is evident that 51.1% of the RS merchandise trade was performed with the EU countries (70.9% exports and 40.3% imports), 22 and countries signatories of the Central European Free Trade Agreement (CEFTA) % (21.2% exports and 17.7% imports). 24 Concurrently, the major individual RS export partners were Italy (18.4%), Serbia (14.9%) and Croatia (10.3%). On the import side, owing to the imports of crude oil for the needs of domestic oil manufacturing capacity, a dominant share belongs to Russia (21.5%), followed by Serbia (16%) and China (12%). Given the importance that the raw materials and other semi-finished products have for the domestic exports, the dynamics of the industrial activity of countries which are major foreign trade partners will affect the overall RS export results. On the other hand, due to a high relative participation of imports in meeting the demands of domestic consumption, the pace of its recovery will have a dominant impact on the import volume in RS and BiH. 19 Of the total RS import in (BAM 4.9 billion) 13.1% refers to import in the sector of food and live animals. Source: RSIS 20 In 2010, export of food products from RS grew at an inter-annual rate of 4.5%, 5.1% in 2011, 2% in 2012 and 9.9%. in During, the exports of crude materials inedible, except fuel amounted to BAM million and it was 2.5 times higher while exports in the area of various finished products amounted to BAM million and it is higher by 67.8% than the imports. 22 In the same period, 63.5% of the BiH trade in goods was implemented with the EU countries (72.2% imports and 58.9% exports). Source: BHAS 23 CEFTA- Central European Free Trade Agreement. Current members of this group are BiH, Albania, Montenegro, FYR Macedonia, Moldavia, Serbia and the UNMIK/Kosovo. 24 In, BiH implemented 12.9% of its trade with the CEFTA signatories (15.6% exports and 11.5% imports). Source: BHAS 18

23 5. STATISTICAL ANNEX Table 1: Тhree-month RS Gross Domestic Product, real growth rates (%), y/y 2013 I II III IV I-IV I II III IV I-IV A Agriculture, hunting and forestry B C D E Mining and quarrying; Manufacturing; Electricity, gas, steam and air conditioning supply; Water supply, sewerage, waste management and remediation activities of which: C Manufacturing F Construction G H I Wholesale and retail trade, repair of motor vehicles, motorcycles; Transport and storage; accommodation services, catering services, hotels and restaurants J Information and communication K Financial and insurance activities L Real estate activities M N Professional, scientific and technical activities; Administrative and support service activities O P Q Public administration and defence; compulsory social security; education; Human health and social work activities R S Arts, entertainment and recreation FISIM (minus) GROSS VALUE ADDED Taxes on products, minus subsides GROSS DOMESTIC PRODUCT

24 Table 2: Тhree-month BiH Gross Domestic Product, real growth rates (%), y/y Подручја дјелатности 2013 I II III IV I-IV I II III IV I-IV A Agriculture, hunting and forestry B Mining and quarrying C Manufacturing D E Electricity, gas, steam and air conditioning supply Water supply, sewerage, waste management and remediation activities F Construction G Wholesale and retail trade, repair of motor vehicles, motorcycles H Transport and storage I Catering services, hotels and restaurants J Information and communication K Financial and insurance activities L Real estate activities M Professional, scientific and technical activities N Administrative and support service activities O Public administration and defence; compulsory social security P Education Q Human health and social work activities R Arts, entertainment and recreation S Other service activities FISIM Gross Value Added Taxes on products, minus subsides Gross Domestic Product Source: BHAS Таble 3: Rates of change in RS industrial production, in %, y/y Industry Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply

25 Таble 4: Rates of change in BiH industrial production, in %, y/y Industry Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Source: BHAS Table 5: Production in the construction sector, calendar adjusted, in %, y/y 2013 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 TOTAL Buildings Civil Engineering Table 6: RS Unemployment Category I-XII I II III IV V VI VII VIII IX X XI XII Number of the unemployed Newly registered unemployed persons Total deleted from the records Deleted from the records due to employment 145, , , , , , , , , , , , ,675 5,144 5,511 5,296 4,824 4,725 3,532 5,296 6,174 4,263 5,935 5,574 4,778 5,823 5,464 4,217 4,855 5,251 6,242 3,836 5,340 5,778 4,770 8,146 6,590 4,715 5,823 2,640 1,674 2,553 2,561 3,174 1,886 2,687 2,668 1,747 4,858 3,330 2,230 2,307 Source: RSEI 21

26 Table 7: Average RS net salary, by sector, in BAM Sectors I-XII I II III IV V VI VII VIII IX X XI XII Total A Agriculture, hunting and forestry B Mining and quarrying 1,072 1,060 1,101 1,054 1,064 1,081 1,128 1,044 1,018 1,070 1,042 1,059 1,141 C Manufacturing D Electricity, gas, steam and airconditioning supply 1,060 1,069 1,091 1,044 1,067 1,073 1,118 1,054 1,022 1,055 1,030 1,032 1,073 E Water supply, sewerage, waste management, remediation activities F Construction G Wholesale and retail trade, repair of motor vehicles and motorcycles H Transport and communications I Accommodation and food service activities, hotels and restaurants J Information and communication 1, ,178 1,223 1,184 1,180 1,251 1,186 1,210 1,206 1,178 1,173 1,200 K Financial and insurance activities 1,268 1,260 1,290 1,284 1,267 1,276 1,240 1,281 1,284 1,241 1,272 1,249 1,266 L Real estate activities M N O Professional, scientific and technical activities Administrative and support service activities Public administration and defense; compulsory social security ,083 1,050 1,066 1,059 1,061 1,075 1,108 1,106 1,084 1,095 1,092 1,097 1,100 P Education Q R Human health and social work activities Arts, entertainment and recreation 1,045 1,042 1,076 1,037 1,029 1,036 1,056 1,045 1,041 1,045 1,037 1,048 1, S Other service activities

27 Тable 8: Average BiH net salary by sector, in BAM Sectors I-XII I II III IV V VI VII VIII IX X XI XII Total A Agriculture, hunting and forestry B Mining and quarrying ,013 C Manufacturing D Electricity, gas, steam and airconditioning supply 1,322 1,368 1,275 1,289 1,320 1,361 1,329 1,341 1,286 1,312 1,332 1,309 1,344 E Water supply, sewerage, waste management, remediation activities F Construction G Wholesale and retail trade, repair of motor vehicles and motorcycles H Transport and communications I Accommodation and food service activities, hotels and restaurants J Information and communication 1,221 1,210 1,179 1,210 1,218 1,219 1,220 1,249 1,234 1,231 1,248 1,179 1,258 K Financial and insurance activities 1,343 1,331 1,342 1,337 1,419 1,327 1,324 1,354 1,350 1,324 1,336 1,316 1,357 L Real estate activities M N O Professional, scientific and technical activities Administrative and support service activities Public administration and defense; compulsory social security ,165 1,151 1,157 1,154 1,156 1,168 1,177 1,174 1,164 1,169 1,168 1,165 1,177 P Education Q R Human health and social work activities Arts, entertainment and recreation 1,037 1,053 1,003 1,026 1,028 1,041 1,033 1,058 1,031 1,039 1,055 1,011 1, S Other service activities Source: BHAS 23

28 Table 9: Overview of RS inflation trend, measured by Consumer Price Index - CPI Index period I-XII I II III IV V VI VII VIII IX X XI XII Baseline period Same period last year TOTAL Food and non-alcoholic beverages Alcoholic beverages and tobacco Clothing and footwear Housing, water, electricity, gas and other fuels Furnishings, household equipment and routine maintenance of the house Health care Transport Communications Recreation and culture Education Restaurants and hotels Other goods and services Tаble 10: RS Lending interest rates in, in % Category I-XII I II III IV V VI VII VIII IX X XI XII Interest rates on short-term loans Interest rates on long-term loans Total loans Source: BARS Table 11: RS and BiH foreign trade in, in 000 BAM Republic of Srpska I- XII I II III IV V VI VII VIII IX X XI XII Export 2,694, , , , , , , , , , , , ,445 Import 4,946, , , , , , , , , , , , ,262 Merchandise trade volume Merchandise trade balance Export-import ratio in % 7,640, , , , , , , , , , , , ,707-2,252,126-55, , , , , , , , , , , , Bosnia and Herzegovina I- XII I II III IV V VI VII VIII IX X XI XII Export 8,683, , , , , , , , , , , , ,427 Import 16,199,306 1,003,870 1,266,818 1,356,692 1,330,882 1,350,012 1,325,658 1,423,185 1,365,246 1,482,753 1,536,234 1,352,724 1,405,232 Merchandise trade volume Merchandise trade balance Export-import ratio in % 24,883,086 1,658,446 1,938,775 2,092,575 2,067,667 1,998,819 2,074,059 2,214,696 1,999,953 2,280,927 2,327,295 2,093,215 2,136,659-7,515, , , , , , , , , , , , , and BHAS 24