Net core inflation, stripping out food and fuel prices, accelerated to 2.5% y/y in Feb. from 1.9% in Jan., matching our forecast and hitting the highest level since Sept. 2002, according to NBP data released on Friday. The acceleration comes in part due to regulated price hikes, but also due to higher services prices in general. Though the regulated part could suggest less growth in underlying price pressure than it seems, the 15% trimmed mean indicator suggests more problems with inflation. The 15% trimmed mean print was 4.2% y/y in Feb., up from 3.7% in Jan. The NBP said in its Feb. inflation report that one should be cautious when using net core inflation in looking for the impact of demand pressures and that the 15% trimmed mean figure might be better since it deals more symmetrically with globalisation processes on inflation.

The MPC, which meets to decide rates on Mar. 26, will hike rates in our opinion with the hawks and swing-voters using the spike in net core inflation to the highest level in nearly 5 and a half years as another argument. The council will still be worried about the rise in CPI inflation, albeit to a lower-than-expected level, and, more importantly, with fast wage growth that far outpaces a level consistent with the NBP's 2.5% inflation target and productivity growth. Though high Feb. industrial output suggests a decline in the growth rate of unit labour costs, they are still growing at a relatively fast rate and going forward they are likely to pick up further.

Core inflation (%)

Feb-07 Jan-08 Feb-08 Feb-07 Jan-08 Feb-08   m/m m/m m/m y/y y/y y/y CPI 0.3 0.7 4.0 1.9 4.0 4.2 stripping out:             Regulated prices 0.3 0.9 0.1 1.8 3.8 3.7 Most volatile prices 0.0 0.3 0.0 1.5 4.2 4.2 Most volatile/fuel prices 0.0 0.4 0.1 1.7 3.6 3.8 Food/fuel - net inflation 0.0 0.7 0.6 1.6 1.9 2.5 15% trimmed mean 0.1 0.5 0.3 1.2 3.7 4.2

Source: NBP

Retail sales (wda and non-wda) declined by 3% y/y in January 2008, following a 4% y/y fall in December 2008, according to data of the KSH released on 21 March. The seasonally and working days adjusted retail sales did not change on a m/m basis in January compared to December (-0.3% m/m).

Retail sales (both wda and non-wda) have been in the red for 12 months (February 2007 – January 2008). It reflects adjustment of consumption triggered by fiscal austerity measures and falling wages in real terms. Food, drinks and tobacco sales (non-wda) declined by 2.3% y/y in January (- 2% y/y in December), while non-food sales were down by 3.7% % y/y in January (- 5.7% y/y in December).

The January and previous releases do not offer any new information, meaning that there are still no indications about the possible recovery of retail sales and consumption. However, given the weakening base, some recovery might take place as of the beginning of 2008, but the recovery this year is not expected to be fast-paced.

Retail sales y/y indices (nwda)

Food, drinks, tobacco Non-food Retail total Jan-07 101.0 101.7 101.3 Feb-07 99.9 99.6 99.8 Mar-07 99.8 98.5 99.1 Apr-07 98.9 97.0 97.9 May-07 99.5 93.8 96.4 Jun-07 99.8 93.2 96.2 Jul-07 98.9 94.7 96.8 Aug-07 98.0 93.9 95.9 Sep-07 97.0 92.6 94.7 Oct-07 96.7 96.5 96.6 Nov-07 98.0 93.9 95.8 Dec-07 98.0 94.3 96.0 Jan-08 97.7 96.3 97.0

Source: KSH

Representatives of the EconMin announced updated figures about the macroeconomic development of Russia in the next three years. The figures are part of the macroeconomic forecast the ministry prepares regularly. As it can be seen from the table the main indicators are revised upward. According to FinMin Kudrin, the revision has taken into consideration the development of the international markets which in fact has favorable impact on the performance of the Russian economy.

Russia demonstrated improved economic indicators in February after its good performance a month ago, Rosstat announced Monday. However, this time the picture is opposite to that of January. The second month of 2008 can be characterized by downward development of income measuring indicators and upward performance of real economy indicators.

The real disposable incomes decelerated to 10.6% y/y after the rise of 12.9% y/y a month ago. This indicator is characterized by fluctuation around some average value and most probably next month will increase again to levels around 12%. At the same time wages continue to increase during the month and in nominal terms reached an average level of RUR 15,214. However, relatively it decelerated to 27.7% y/y. down from 30.3% y/y a month earlier. Real wage is also down to 13.3% y/y from 15.8% y/y fixed in January. However, the wages indicators most probably will continue to accelerate taking into account some factors as governmental policy and insufficient labour force in many sectors. However, it should be noted that the unemployment rate rose considerably in February to 6.6%, which is eight month high and reached nominally 5mn people. However, most probably this situation reflects some seasonal development taking into account that the unemployment in the last several years registered its highest rate and it is expected to start decelerating again since March.

On the other hand the performance of the supply side sectors accelerated to levels much above than average from the last year. Thus, the growth of the retail trade sector reached its absolute record growth rate of 17% y/y in many years. Of course most probably it has been boosted by the growth of the incomes in January and most probably will decelerate in March. However, the growth was really impressive and most probably the sector will demonstrate good performance trough the whole 2008. Investments in fixed capital demonstrated very good performance as well, reporting a growth of 21.2% y/y, although it is bellow its last year peaks. However, taking into account the development of the situation at the international markets we expect the investments in the Russian economy to accelerate further in the months to come which will boost the whole economy in middle term. Construction registered again considerable growth of 30% y/y, slightly below the revised peak of 30.3% in January although we do no expect these rates to preserve in the future and most probably the sector will decelerate its performance in the next months.

Finally, Rosstat reported also the PPI inflation in February, which was 0.6% m/m, much below than 1.6% m/m registered in January. The largest contribution to the producing price index was made by the utility sector the prices in which being up 15.9% while the prices in extracting sector declined by 4.6 m/m. However, on annual basis the highest price growth was demonstrated exactly in the extracting sector, 50.6% y/y while utilities registered the lowest PPI inflation of 16.9% y/y. Manufacturing prices accelerated further for fifth month in a row to 20.3% y/y, a multiannual peak.

Yesterday EconMin published the draft regulation that says the ministry is going to introduce the upper limit on profit margins for food producers (at 12%) and food retailers (at 15%). The measure concerns only those «socially sensitive» food products, the prices for which are regulated by the local administrations.

The document is a part of the package of administrative anti-inflation measures designed by PM Timoshenko's government. Notably, similar measures were adopted in H2 2007 by PM Yanukovych's government, yet in November the measures were deemed inefficient, im part because regional governors boycotted further administrative tightening to avoid possible food deficit. Now local experts are also quite sceptical about efficiency of the proposed measures for the same reason.

Kazakhstan does not have any prerequisites for economic downturn, said EconMin Bahyt Sultanov in his interview to KZ official media. He is cited as saying that modernization measures implemented recently, as well as actions of the government reduced a negative impact of the external shock. Sultanov is sure that the Kazakh economy will continue growing without large swings this year, albeit at the slower pace. Concerning inflation, EconMin also said that the government is satisfied with the numbers in February, as the accumulated inflation in Jan-Feb stays at the same level as last year. Thus, the one-digit inflation target remains in place.

Inflation is expected to slow down while external imbalances to become smaller, but still to remain large, according to the finance ministry's macroeconomic projections until 2010. Inflation is expected to slow down from 6.7% in 2007 to 3% in 2010, assuming no further external (and food price) shocks and continued economic reforms. The GDP expansion in nominal terms is seen to slow down from an estimated 13.5% in 2007 to 8.5% in 2010 (no real GDP growth forecasts presented). Given the strong economic growth and continue reforms the unemployment rate is projected to fall below 10% in 2009. There is an evident expectation for fiscal policy relaxation in 2008, but no budget deficits are foreseen. As far as external imbalances are concerned, the finance ministry sees some improvement in the coming years. However, the external trade deficit is expected to fall below 30% of GDP only in 2010, while the current account deficit is expected to stay above 20% in the forecast horizon. Importantly, the net inflow of FDI and other investments as a percentage of GDP is seen at similar levels as the current account deficit.

Forecasts and actual macro data, Montenegro

2006 2007 2008 2009 2010 GDP, nominal y/y 10.1% 13.5% 11.0% 9.5% 8.5% Inflation, y/y 2.0% 6.7% 4.0% 3.5% 3.0% Unemployment rate, % 14.7% 12.2% 10.8% 9.8% 8.8% Public finance balance, % of GDP 3.4% 3.1% 0.7% 1.0% 1.1% Current account, % of GDP -25.6% -32.2% -30.6% -28.8% -23.9% Foreign debt, % of GDP 25.2% 21.2% 20.0% 18.9% 17.1% FDI and other investments, % of GDP 30.1% 34.5% 31.4% 28.7% 23.9%

Source: Montenegrin Ministry of Finance

Real net wage growth in Serbia picked up to 8.4% y/y in February from 4.2% y/y in January, according to data of the Serbian statistical institute released on Friday (March 21). In nominal terms, net wage growth accelerated to 22.8% y/y in February from 17% y/y in January. The net average wage increased by almost 10% m/m in February to RSD 30,982 (EUR 373). Wages on a month basis tend to increase notably in February, but the one in 2008 is somewhat higher than in previous years. In 2008, the base effect will have a moderating effect on y/y wage growth. However, we do not expect to see nominal wage growth in the single digit territory any time soon. Despite the double-digit inflation and the persistent increase in food prices, there have still not been demands for wage adjustments in the budget sector. However, the Serbian central bank (NBS) expects that it might be a matter of time before calls for wage adjustments arrive.

Cashing in whatever political capital the Bush administration - and he personally - may have left, US vice-president Dick Cheney has just finished a visit to Saudi Arabia during which he sought to cajole King Abdullah to hike oil production in a bid to ease imported price pressures into the US economy at a time of heightened financial tensions. The hope is is that Cheney's experience and contacts in the region may produce a breakthrough, but given the crisis in Lebanon and the Palestinian territitories, in which the Saudi regime plays important counter-veiling roles to the US's greatest enemy in the region, Iran, added to the fragility of confidence in the US economy, the Saudi side clearly has greater leveerage in negotiations on oil production. Cheney wants OPEC to rein in prices by boosting output, with mounting fears over the impact of rising prices on the US economy. Oil hit a record USD 111 a barrel last Thursday, before falling off since. Cheney argued it is in Saudi Arabia's interest to help the US avoid a protracted downturn because oil producers are overestimating Asian countries' ability to meet any decline in US demand. Bush in January urged OPEC to increase production, a request that was rebuffed. Cheney said there is little spare capacity in the global oil market, adding the declining value of the dollar was putting pressure on oil prices as well as increasing demand in China, India and in the oil-producing nations themselves.

Saudi CPI inflation in Feb 08 surged to 8.7 % y/y, outpacing market expectations and posting a record high for the last twenty seven years, official data from the central department of statistics showed. CPI inflation in Jan 08 came at 7% y/y, up from 6.5% y/y in Dec 07. The sustained acceleration in price inflation during Feb 08 was fuelled by rents, which spiked by 18% y/y, however, the real shockwave originated from food costs as they soared by a surprising 13% y/y, compared to a 7.9% y/y hike in Jan 08, the data showed. Forced to mirror the US rate cuts at a time when its economy is witnessing record level of growth, Saudi Arabia has resorted to lending curbs to dampen the unprecedented boom in money supply.

However, the central bank’s efforts have to date remained fruitless. Broad money supply (M3), considered a major indicator for future CPI inflation trends, accelerated to SAR 815.2bn (USD 218bn) in Jan 08. Price growth in the world’s largest oil exporter is set to continue its upward trend through H1/08, even exceeding the 10 % benchmark, as certain Saudi officials are projecting, before starting moderating in H2, dragged down by the recent socio-economic measures undertaken by the government.

Iraq’s crude oil exports in Feb 08 reached 56.1mn barrels, compared to 59.6mn barrels in Jan, however, the country accumulated USD 5.04bn in revenues, an increase from USD 4.813bn in Jan 08, due to the rise in world oil prices, the Oil Ministry said in a statement on Monday. Average production for Feb came at 2.4mn bpd, with exports averaging 1.93mn bpd, the ministry said. The southern port of Basra contributed the lion’s share of Iraq’s overall oil exports with an average 1.54mn bpd exported while the northern city of Kirkuk exported nearly 390,000 barrels per day. The relative improvement in the security situation boosted Iraq’s oil exports by 9.2% in 2007 to nearly 600mn barrels, an average of 1.6mn per day, as oil shipments through the northern pipeline from the Kirkuk oil fields to Turkey’s Ceyhan terminal on the Mediterranean Sea were virtually un-disrupted.

Last month, US auditors briefed Congress that Iraq is not “spending much of its own money,” despite soaring oil revenues that are pushing the country toward a “massive budget surplus.” Iraq's revenues from crude oil sales in 2007 reached USD 39.8bn, or 31% more than in 2006. The embattled country is planning to boost its oil output to 3mn barrels a day by the end of 2008 and is also targeting production of 4.5mn bpd by end of 2013.According to the IMF, Iraq's oil production is projected to climb by 200,000bpd to 2.2mn barrels a day in 2008, boosting the country's GDP growth to more than 7%.

Cameroon has ranked low in the 2008 Doing Business Report of the WB, failing to progress from the 154th position it occupied in 2007. Compared with 178 other countries Cameroon did really badly with respect to trans-border trade and access to financing, losing 8 places to the 132nd position and 4 places to the 115th place respectively. But the report showed a slight drop in the number of companies folding up leading to a gain in 5 places compared to the 97th place last year.

The ranking has not come as a surprise to experts who believe national and foreign investors alike still have difficult time setting up and running businesses in Cameroon. Major impediments to investments have been identified to include red tape, ill adapted fiscal policies, thin infrastructure, insufficient energy supply and widespread corruption. The 2008 rating is bad news for authorities because it means that efforts deployed over the last years to deal with these problems and to improve the business climate were either insufficient or simply not working.