The region remains an external outperformer with exports and tourism staying strong. However, the "basic" balance of payments had worsened over the past twelve months and is likely to deteriorate in the near-term on the back of higher commodity prices. We expect inflationary pressure to pick up slowly at the margin as demand at home is moderate.

Most equity markets in the West Balkans have rallied and Eurobond spreads have visibly narrowed. We continue to look for longer-term equity outperformance in the region.