Serbian town in the winter

Serbia GDP Q3 2023

Serbia: Robust domestic demand buoys GDP growth in Q3

GDP growth picked up to 3.6% year on year in the third quarter from 1.6% in the second quarter. The print was slightly above the 3.5% flash estimate, which had surprised markets on the upside. Q3’s reading marked the best result since Q2 2022. On a seasonally adjusted quarter-on-quarter basis, economic growth was unchanged from Q2’s 1.3% in Q3.

The improvement was solely driven by stronger domestic demand. Lower inflation and unemployment contributed to a rebound in household spending, which increased 1.3% in the third quarter, contrasting the second quarter’s 0.5% contraction. Moreover, government consumption also rebounded, growing 1.7% in Q3 (Q2: -1.6% yoy). Meanwhile, fixed investment growth improved slightly to 4.1% in Q3 from 3.9% in the prior quarter.

On the flip side, the contribution of the external sector deteriorated. Exports of goods and services fell 1.5% on an annual basis in the third quarter, which contrasted with the second quarter’s 2.4% expansion. Conversely, imports of goods and services contracted at a more moderate pace of 1.2% in Q3 (Q2: -5.5% yoy).

Our panel sees the economy maintaining its momentum in Q4 and going into 2024. Domestic demand is set to remain the main engine of growth next year as inflation and the unemployment rate decline relative to 2023. Moreover, as price pressures cool, the Central Bank is expected to start reducing interest rates, which will provide a further boost. That said, risks are skewed to the downside and include the escalation of tensions with Kosovo and potential EU sanctions.

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