Serbia Economic Forecast

The economy expanded 0.7% year on year in the first quarter. In annual terms, while investment rebounded, private and public consumption contracted. On the external front, exports growth moderated, and imports contracted. Turning to Q2, available data is somewhat negative. Compared to Q1’s average, retail sales contracted more sharply year on year in April, and industrial output grew less. On the positive side, tourist arrivals increased 22% in annual terms in April. In other news, recent violence in Kosovo in the wake of the country’s April mayoral elections—which ethnic Serbs boycotted—has raised tensions with Serbia and make a rapprochement between the countries less likely. Additionally, domestic protests triggered by mass shootings in early May could be weighing on activity and result in early elections.

Inflation came in at 15.2% in April (March: 16.2%). Inflation should return to single-digit territory by Q4 due to a more favorable base of comparison but will still be elevated by historical standards. Volatile energy prices are a factor to watch. A more hawkish Central Bank and a better-than-expected agricultural season are downside risks.