Serbia: Growth accelerates in Q2
The economy grew 2.9% in annual terms in the second quarter, up from the upwardly revised 2.7% expansion registered in the first quarter (previously reported: +2.5% year-on-year). Meanwhile, on a quarter-on-quarter seasonally-adjusted basis, GDP expanded 1.2% in Q2, accelerating from Q1’s revised 0.8% expansion (previously reported: +0.3% quarter-on-quarter).
Stronger fixed investment growth (Q2: +8.6% year-on-year; Q1: +7.8% yoy), which likely benefited from robust construction activity on infrastructure projects and ongoing reforms linked to the IMF-backed Policy Coordination Instrument program, propelled the acceleration in the second quarter. Meanwhile, household spending was relatively stable in the quarter (Q2: +3.2% yoy; Q1: +3.3% yoy), supported by a tighter labor market and higher wages and pension payouts, while public consumption growth was also relatively steady despite falling to a near one-year low (Q2: +2.4% yoy; Q1: +2.5% yoy).
Turning to the external sector, growth in exports of goods and services moderated to a one-year low in Q2 (Q2: +9.1% yoy; Q1: +9.3% yoy), likely dampened by trade tensions with Kosovo and weaker Eurozone demand. Conversely, growth in imports of goods and services picked up (Q2: +10.9% yoy; Q1: +9.8% yoy), likely in part due to the acceleration in investment spending. Overall, the external sector subtracted 1.9 percentage points from headline GDP growth in Q2 (Q1: -1.1 percentage points).
Following the weaker start to the first half of the year, the economy is expected to gain traction moving into H2. Stable consumer spending, strong FDI inflows and an improved business climate should all support growth, reinforced by ongoing efforts to pursue IMF-backed reforms. That said, overall annual growth is still expected to come in well below 2018’s robust performance, dampened by anemic industrial production and external headwinds linked to the expected slowdown in the Eurozone, Kosovo import tariffs, rising global trade protectionism and regional tensions.
Commenting on UniCredit’s outlook for the Serbia economy and monetary policy developments, Mauro Giorgio Marrano, senior CEE economist, noted:
“Serbia’s economic outlook will depend on the performance of investment and exports, where downside risks prevail. […] Despite slower growth ahead, we believe that rate cuts have ended for 2019. While the economy could be weaker than the NBS expects, the central bank has to account for potential capital outflows from [emerging markets] if the global economic outlook worsens. […] The NBS could resume cuts in 2020 if a global economic slowdown leads central banks in developed and emerging economies to ease more than currently expected, and as long as capital flows do not push EUR-RSD higher.”