GDP in Serbia

Serbia - GDP

Comprehensive estimate shows Serbian economy lost momentum in Q4 2018

According to a comprehensive estimate released by the Statistical Institute on 1 March, economic growth cooled notably in the final quarter of the year. The economy grew a revised 3.4% in annual terms in Q4, which was down from the flash estimate of 3.5% growth and was also below Q3’s upwardly revised 4.1% print (previously reported: +3.8% year-on-year). On a quarter-on-quarter seasonally-adjusted basis, GDP expanded 0.3% in Q4 (Q3: +0.8% quarter-on-quarter). Taking Q4’s growth into account, the economy expanded 4.3% overall in 2018, a significant acceleration from 2017’s 2.0% expansion.

Softer growth at the end of the year was primarily the result of more muted domestic demand, driven by a sharp moderation in fixed investment growth (Q4: +3.2% yoy; Q3: +8.3% yoy). Moreover, private consumption growth decelerated marginally to 3.2% in Q4 over the same quarter of the prior year (Q3: +3.3% yoy), despite a tighter labor market, rising wages, and strong retail sales throughout the quarter. Government consumption also weakened, expanding 3.3% in Q4 (Q3: +4.0% yoy).

The external sector improved in the fourth quarter, although it continued to drag on the headline print. Exports of goods and services gained strength, increasing 10.6% in Q4 (Q3: +9.3% yoy), despite signs of a weakening external environment and continued trade tensions with Kosovo. However, although imports moderated in Q4, they still outpaced exports at a pace of 10.9% (Q3: +11.4% yoy).

Moving forward, the economy is expected to soften in 2019. A weaker industrial sector and mounting external headwinds—mainly stemming from a slowdown in the Eurozone and global trade protectionism—will likely weigh on growth. Nevertheless, the loosening of fiscal spending restraints, which will result in higher pension payouts and a public wage hike, and continued consumer spending should see domestic demand remain at healthy levels in the year. Moreover, cooperation with the IMF through the Policy Coordination Instrument, which is a non-financial framework for macroeconomic reforms, and progress on reforms for EU accession should strengthen investor confidence and sustain FDI inflows.

The National Bank of Serbia projects the economy to grow 3.5% in 2019. Last month, FocusEconomics Consensus Forecast panelists also expected growth of 3.5% in 2019, which was unchanged from the prior month’s forecast, and 3.3% in 2020. New forecasts will be available in the 5 March publication.