Serbian town in the winter

Serbia GDP Q1 2021

Serbia: Economy grows at much stronger pace than previously estimated in Q1

The economy performed better than previously estimated in the first quarter, with GDP expanding 1.7% year-on-year (previously reported: +1.2% yoy) and swinging from a 1.0% contraction in the fourth quarter of last year. The print largely reflected strengthening business activity and healthier foreign demand. On a seasonally-adjusted quarter-on-quarter basis, meanwhile, economic growth slowed slightly to 1.9% in the first quarter from 2.3% in the fourth quarter.

The annual improvement in Q1 came despite still-weak consumption. Household spending dropped 1.9% year-on-year in the first quarter (Q4 2020: -2.6% yoy), weighed down by lingering restrictive measures to curb the spread of the coronavirus. Public consumption, meanwhile, swung to a 0.6% contraction from a 4.6% expansion in the fourth quarter. More positively, fixed investment rebounded from a 4.1% drop in Q4 to a 10.0% increase in Q1. This marked the first expansion in capital outlays since the first quarter of last year and likely reflected an improved demand outlook and more upbeat views on the economy ahead.

On the external front, growth in exports of goods and services accelerated to 7.9% in Q1 from 2.1% in the prior quarter. Meanwhile, imports of goods and services contracted 1.4%, contrasting the 0.8% expansion logged in the fourth quarter and highlighting the fragility of the economic recovery.

Looking ahead, the economy is forecast to continue growing this year. The gradual relaxation of restrictive measures, which were further eased on 7 May, will buoy domestic demand, particularly over the summer and in the second half of the year. Softer lockdown measures abroad will strengthen external demand and provide additional support. However, risks are largely tilted to the downside amid lingering uncertainty regarding the evolution of the pandemic, an expected uptick in the unemployment rate and the phasing out of some fiscal support measures.

Ljiljana Grubic, economic research specialist at Raiffeisen Research, added:

“The progress in the vaccination programme and closely related calming down of the pandemic, recovery in the macro-economic setup in the eurozone and the ongoing third stimuli package (totalling EUR 2.1 bn) will add to even more dynamic growth in Q2 which is why we have raised our GDP forecast to 5.5%, though upside risks to the projections are present, given the encouraging Q1 result.”

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