Serbia: Economic growth overshoots expectations in Q2
Economic growth accelerated to 13.7% year-on-year in the second quarter from 1.8% in the first. This marked the best result since the fourth quarter of 2001, and overshot market expectations of a 13.4% expansion. However, on a seasonally-adjusted quarter-on-quarter basis, the economy grew 1.3% in the second quarter. This was down from the first quarter’s 2.0% expansion and suggests that underlying momentum eased.
The jump in the headline reading was buoyed by a favorable base effect, as well as another stimulus package, progress on the vaccination front and softer lockdown measures from May onwards. The easing of restrictions boosted household spending, with growth skyrocketing 17.6% over the same period a year earlier in Q2, swinging from the 1.7% contraction logged in the first quarter. Meanwhile, fixed investment growth accelerated to 22.5% in the second quarter from 9.0% in the first, supported by robust activity in the construction sector and a healthy expansion in wholesale and retail trade. Less positively, public consumption contracted 3.8% year-on-year, down from the 0.6% fall recorded in the first quarter.
On the external front, growth in exports of goods and services shot up to 36.5% in the second quarter, markedly up from the 8.4% expansion logged in the first. Firming domestic demand, however, drove growth in imports of goods and services up to 42.9% year-on-year in the second quarter, swinging from the 1.0% contraction recorded in Q1. As such, the external sector deducted around 7.0 percentage points from GDP.
The economy is forecast to grow robustly in the year as a whole, buoyed by the easing of restrictive measures amid progress on the vaccination front. A supportive base effect will flatter the growth reading, however. Softer movement restrictions abroad and the economic recovery in key European Union trading partners will support the external sector. Currently, the balance of risks seems stable. On the one hand, uncertainty over the course of the pandemic and the possibility of tighter restrictions continue to cloud the outlook. On the other hand, resilient wage growth and firming domestic demand are upside risks. Next year, the recovery will likely soften due to the phasing out of fiscal stimulus measures and an expected uptick in the unemployment rate.
Mate Jelic, analyst at Erste Group, added:
“Domestic demand was the key factor driving growth [in the second quarter]. […] Already upon the release of the flash GDP figure earlier this month we have upgraded our GDP forecast by 1pp to 7.0% yoy average growth for this year as the momentum seems a tad stronger than expected early in the year. Structure wise, we expect a similar pattern in H2 2021. Consumption is supported by steady wage growth […] and decent cash loan activity.