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Germany, Latvia, Mauritius, Mongolia, Montenegro and Kosovo Country Risk Report Q4 2016; New Report Launched

Market Research Reports, Inc. has announced the addition of “Germany, Latvia, Mauritius, Mongolia, Montenegro and Kosovo Country Risk Report Q4 2016” research report to their website


Lewes, DE -- (SBWIRE) -- 09/06/2016 -- Germany will feel the impact of 'Brexit' via weaker export growth and reduced private sector confidence as European political and economic risks rise, and we have revised down our real GDP growth forecasts for the country. Nonetheless, Germany's domestic demand story will remain robust, with household consumption and residential construction growing strongly in the next few years. Germany will continue to run large current account surpluses, despite a gradual transition towards a more consumption-based growth model. Strong revenue growth, containment of expenditure and low interest rates will continue to contribute to a lower German general government debt load over time.

There is increasing scope to commit more funds to growth-boosting infrastructure investments, but the window for such a policy shift may be closing. Chancellor Angela Merkel will struggle to retain popular support amid the migrant crisis and rising incidence of violence across the country but will still win the next federal election in 2017 if she decides to run.

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From a cyclical perspective, the rise in economic confidence and industrial production point to a growth pick up in H216, supported by recovering exports. Medium term, the solid business environment should ensure economic growth outperformance in a European context, in spite of the ongoing demographic decline. Latvia's Short-Term Political Risk score of 72.1 out of 100 is likely to remain above the eurozone average of 69.8, supported by strong policy continuity and social stability. The potential for Russian aggression remains the main political risk, as highlighted by the poor showing in the 'security/external threats' subcategory.

Major Forecast Changes
Real GDP growth came in at 2.1% y-o-y in Q116, with private consumption the main contributor to the headline figure. On a q-o-q annualised basis the figure came in at 1.6%, recovering from a mild contraction in Q415. Despite this rebound and our expectations for a continued recovery in H216, we have downwardly revised our 2016 growth forecast to 2.3%, from 3.0% previously.

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The outlook for economic growth in Mauritius is far more precarious than it was three months ago, and in the wake of the UK's decision to leave the EU (Brexit), we now anticipate that real GDP growth will come in at just 3.2% in 2017, compared to our previous projection of 4.2%. The island nation is heavily exposed to both the UK and the EU, where we also expect that post-Brexit turmoil will result in slower growth. Mauritius will see only a slight reduction in its budget deficit over the next several years.

We expect that the government will seek to support the central bank's accommodative monetary policy through growth-generating spending. Even so, this will be limited by lacklustre revenue collection growth and concerns over increasing the debt burden. The Mauritian rate-cutting cycle has further to go before the end of 2016. The Brexit vote will further jeopardise already weak demand, prompting the bank to seek to stimulate the economy.

We expect that Mauritius and the five partner states of the East African Community (EAC) will pursue greater political and economic ties over the coming years, especially in the wake of the island state's renegotiation of its trade deal with India. This will mean that the country will skew more towards Sub-Saharan Africa as it looks for growth markets to offset the likely loss of business and investment from India.

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The landslide victory by the Mongolian People's Party (MPP) in the June 29 parliamentary elections will usher in a period of relative political stability and improved policy coordination over the coming years. Mongolia's real GDP growth is stabilising, and appears to be turning the corner. Therefore, we are upgrading our 2016 real GDP growth to 3.0% (from 1.5% previously), and maintaining our 2017 forecast of 4.2%. Investment in the landlocked nation will recover amid improved policymaking under the MPP-led government and the start of the second phase construction of the Oyu Tolgoi (OT) underground copper and gold mine in H216.

However, the landlocked economy will continue to face headwinds due to a cooling Chinese economy, which will prevent the Mongolian economy from growing at a faster pace. We are cautious on the Mongolian togrog against the US dollar, and maintain our forecast for the unit to average MNT2,040/USD in 2016 and MNT2,088/USD in 2017. The currency's valuations are elevated, and the togrog is still vulnerable to shocks owing to its high level of external indebtedness and the central bank's weak external liquidity position. We are paring back our dovish expectations due to the lack of easing bias by the Bank of Mongolia (BoM) at its July monetary policy meeting where it held its benchmark policy rate steady at 10.50% and signs of currency weakness.

We are now forecasting the central bank to cut interest rates by 50 basis points (bps) to 10.00% by end- 2016 (versus 75bps previously). A muted inflationary environment should provide sufficient policy space for the central bank to attempt to provide continued support to the economy. Mongolia will continue to run fiscal deficits in the coming years as structurally low commodity prices temper revenue growth while public expenditure growth remains elevated amid insufficient expenditure cutbacks due to the government's poor fiscal discipline. The country is increasingly at risk of a credit event as Mongolia and its state-linked entities are facing significant bond repayments beginning from 2017, and it is highly likely that the Mongolian government would have to refinance at significantly higher yields, if it were to be successful at it. Major Forecast Changes We have upgraded our 2016 real GDP growth forecast to 3.0% (from 1.5% previously) as the country's real GDP growth appears to be stabilising and turning the corner.

We expect investment to recover as the second phase development of the OT mine begins in H216, as well as improved policy certainty. We have revised our forecast for the reported fiscal deficit as a share of GDP to 8.0% in 2016 and 7.8% in 2017 (versus 6.7% for both years previously) to reflect the sharp deterioration in Mongolia's fiscal deficit in H116. We have pared back our dovish expectations, and now forecasting the BoM to cut its 1-week central bank bill rate by 50bps to 10.00% by the end of 2016 (versus 75bps previously). At the same time, we also downgraded our average 2016 headline consumer price inflation forecast to 2.5% y-o-y as price pressures have remained muted so far in 2016. However, inflation will remain substantially lower than the central bank's target of 7.0% y-o-y in 2016, implying that there is still room for the central bank to ease interest rates further.

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The government's inability to resolve the impasse over the bill that would enable Kosovo to demarcate its border with Montenegro is likely to persist over the coming months. The difficulties faced in passing the bill suggest that Kosovo will not be able to obtain a visa-free regime for entry into the EU, and this will have negative spillover effects on an economy that remains heavily dependent on remittances. We expect the Kosovo economy to continue to recover amid accelerating remittances and ongoing government efforts to improve fiscal discipline and reduce corruption. As such, we maintain our 2016 real GDP growth forecast of 2.4%.

However, the country's poor energy infrastructure sector will continue to weigh on the government's efforts to lay the foundation for stronger longer term growth by encouraging the development of Kosovo's digital sector.

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