Serbian town in the winter

Serbia GDP Q2 2020

Serbia: GDP records sharpest contraction since Q3 1999 in the second quarter

The economy received a notable blow in the second quarter from Covid-19 and related containment measures, with GDP contracting 6.4% on an annual basis (Q1: +5.1% year-on-year). The print marked the worst reading since Q3 1999.

The downturn was broad-based, with only public consumption increasing, although the growth was slower than in the prior quarter (Q2: +8.9% year-on-year; Q1: +11.8% yoy). Household spending contracted 8.0% in Q2, marking the steepest decline since Q2 1999 (Q1: +3.2% yoy), while fixed investment shrank 11.9%, marking the worst result since Q3 2013 (Q1: +10.8% yoy).

On the external front, exports of goods and services fell 20.7% on an annual basis, which contrasted the first quarter’s 3.0% expansion. Similarly, imports of goods and services deteriorated, contracting 19.3% in Q2 (Q1: +8.1% yoy) and highlighting weakened domestic demand.

On a seasonally-adjusted quarter-on-quarter basis, GDP shrank 9.2% in Q2, down from the previous period’s 0.5% fall. Q2’s reading marked the sharpest downturn in over two decades.

The economy is set to contract sharply over 2020 as a whole. The health crisis is weighing on both domestic and foreign demand and, as such, private consumption, business activity, tourism and exports are all expected to suffer. That said, fiscal and monetary stimulus should soften the blow somewhat. However, the balance of risks remains tilted to the downside amid a second wave of infections and renewed restrictions in July.

Commenting on the outlook, Mauro Giorgio Marrano, senior CEE economist at UniCredit, stated:

“Looking ahead, another wave of coronavirus cases and the expiration of some government support measures could mean that the recovery might lose steam in 2H20. […] In particular furlough and tax deferrals are expected to expire at the end of September, with potential negative repercussions for the labor market, and therefore consumption and investment.”

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