Serbia: Comprehensive estimate shows Serbian economy lost momentum in Q4 2018
According to a comprehensive estimate released by the Statistical Institute on 1 March, economic growth cooled notably in the final quarter of the year. The economy grew a revised 3.4% in annual terms in Q4, which was down from the flash estimate of 3.5% growth and was also below Q3’s upwardly revised 4.1% print (previously reported: +3.8% year-on-year). On a quarter-on-quarter seasonally-adjusted basis, GDP expanded 0.3% in Q4 (Q3: +0.8% quarter-on-quarter). Taking Q4’s growth into account, the economy expanded 4.3% overall in 2018, a significant acceleration from 2017’s 2.0% expansion.
Softer growth at the end of the year was primarily the result of more muted domestic demand, driven by a sharp moderation in fixed investment growth (Q4: +3.2% yoy; Q3: +8.3% yoy). Moreover, private consumption growth decelerated marginally to 3.2% in Q4 over the same quarter of the prior year (Q3: +3.3% yoy), despite a tighter labor market, rising wages, and strong retail sales throughout the quarter. Government consumption also weakened, expanding 3.3% in Q4 (Q3: +4.0% yoy).
The external sector improved in the fourth quarter, although it continued to drag on the headline print. Exports of goods and services gained strength, increasing 10.6% in Q4 (Q3: +9.3% yoy), despite signs of a weakening external environment and continued trade tensions with Kosovo. However, although imports moderated in Q4, they still outpaced exports at a pace of 10.9% (Q3: +11.4% yoy).
Moving forward, the economy is expected to soften in 2019. A weaker industrial sector and mounting external headwinds—mainly stemming from a slowdown in the Eurozone and global trade protectionism—will likely weigh on growth. Nevertheless, the loosening of fiscal spending restraints, which will result in higher pension payouts and a public wage hike, and continued consumer spending should see domestic demand remain at healthy levels in the year. Moreover, cooperation with the IMF through the Policy Coordination Instrument, which is a non-financial framework for macroeconomic reforms, and progress on reforms for EU accession should strengthen investor confidence and sustain FDI inflows.