Serbia: GDP growth records slowest increase in one year in the first quarter
May 31, 2022
GDP growth waned to 4.4% year on year in the first quarter, from 7.0% in the fourth quarter of last year. Q1's reading marked the worst result since Q1 2021.
Household spending growth fell to a one-year low of 7.1% in Q1, inching down from the 7.3% expansion recorded in the prior period. Private consumption was likely held back by greater prices amid the country’s economic reopening and the Russian invasion of Ukraine, which has sent commodity prices spiraling, including for oil and gas. Government spending growth came in at the slowest pace since Q4 2020, expanding 2.5% (Q4 2021: +5.8% yoy). Fixed investment growth fell to 1.0% in Q1, marking the worst result in five quarters (Q4 2021: +9.8% yoy). The war in Ukraine has brought about greater uncertainty regarding the domestic and global economy, which will have dented capital outlays.
On the external front, exports of goods and services growth accelerated to 19.6% in Q1 (Q4 2021: +13.9% yoy). In addition, imports of goods and services growth picked up to 27.3% in Q1 (Q4 2021: +15.5% yoy).
On a seasonally-adjusted quarter-on-quarter basis, economic activity contracted 0.5% in Q1, contrasting the previous period's 1.6% expansion. Q1's reading marked the largest downturn since Q2 2020 and highlights that underlying momentum weakened markedly amid the war in Ukraine and elevated inflation.
The near-term outlook remains clouded by the Russian invasion of Ukraine and the dramatic escalation of geopolitical tensions. Energy and food commodity prices skyrocketed in the wake of the invasion, signaling higher inflation for some time ahead and affecting households’ disposable incomes. Private consumption, which has been a key engine of growth, will therefore likely weaken further. Similarly, greater commodity prices and increased macroeconomic uncertainty should also dent business sentiment and thus drag on fixed investment. More positively, the economic reopening and a tight labor market should provide the economy with some respite. The tourism sector should also recover, benefiting from the rollback of Covid-19 restrictions.
Mate Jelic, analyst at Erste Bank, cautioned against a potentially worsening economic landscape ahead:
“Inventory build-up played a crucial role, alongside strong household consumption. Namely, inventories contributed massive 5.6 percentage points to overall growth […]. We expected growth to contract by around 1.5% yoy, and now, looking at the detailed structure, a more neutral role of inventories would indeed lead to contraction of growth on a yearly basis as well. Inventory build-up was likely strongest in March, as both the private and public sector rushed to stock up on energy and food items as war began in Eastern Europe, bringing a fresh bout of uncertainty. A positive inventory contribution is likely in Q2 as well but could overturn in H2 2022.”