Serbia: Economy powers ahead in Q3
The economy grew a robust 4.8% on an annual basis in the third quarter, accelerating from the second quarter’s 2.9% expansion and coming in well above expectations of 3.4% growth. In quarter-on-quarter seasonally-adjusted, GDP growth surged to 2.2% in Q3, accelerating from Q2’s revised 1.4% expansion (previously reported: +1.2% quarter-on-quarter).
The acceleration in annual growth in Q3 was led by fixed investment growth, which hit a seven-year high in Q3 (Q3: +17.3% year-on-year; Q2: +8.8% yoy) on robust construction activity amid ongoing infrastructure projects and an improving business climate. Moreover, government consumption also strengthened, more than doubling to 4.6% growth in Q3 (Q2: +2.2% yoy). On the downside, household spending moderated slightly (Q3: +3.1% yoy; Q2: +3.3% yoy), despite the tighter labor market, and higher wages and pension payouts.
Turning to the external sector, growth in exports of goods and services quickened to 10.2% year-on-year in Q3 from 9.4% in Q2. Likewise, growth in imports of goods and services also picked up (Q3: +11.4% yoy; Q2: +11.0% yoy) in part due to capital imports related to investment spending. Overall, the external sector subtracted 1.5 percentage points from headline GDP growth in Q3 (Q2: -1.8 percentage points).
Looking ahead to 2020, the outlook remains favorable as the industrial sector should continue to recover and household spending ought to remain strong Moreover, FDI inflows should rise healthily, while IMF-back reforms will likely continue to support business confidence. Nevertheless, the external sector could endure strong headwinds from weaker growth in its European counterparts, a sluggish German auto sector, and cold trade relations with neighboring Kosovo.