January 19 (SeeNews) - UniCredit said it increased its projection for Serbia's 2017 economic growth to 3.0%, 0.6 of a percentage point higher than the previous forecast made in September, as the country's economy is in its best shape since the global financial crisis.
Serbia's economy expanded by an estimated 2.7% in 2016, up 0.1 pp compared to the September forecast, UniCredit said in its January 2017 CEE Quarterly Report.
UniCredit projects economic growth of 3.0% in 2018 for Serbia.
Public infrastructure investment will remain Serbia's biggest growth driver, given the projects in rail and road infrastructure financed with loans from Russia, China and Azerbaijan. "A bumper harvest and new foreign investment projects in siderurgy, car parts and agriculture could keep export growth above 5%, offsetting falling output at Fiat, the country's largest exporter," UniCredit said.
In 2018, UniCredit expects private consumption to play a more prominent role in keeping GDP growth close to 3%. At the same time, public investment could slow, unless the government reduces losses of state-owned enterprises losses or borrows more.
The main risks are loan euroisation and potential early parliamentary elections in April, UniCredit said, recommending Serbia to issue euro-denominated bonds to stabilise external financing and lower the pressure on local issuance.
High euroisation compels Serbia's central bank NBS to defend the currency at the cost of keeping monetary conditions tighter than the economy would require in the current phase of the business cycle. This is likely to continue if the structure of external financing does not change to more stable sources and the average duration of government bonds does not increase, UniCredit said.
Earlier this week, the Directorate-General for Economic and Financial Affairs (DG ECFIN) of the European Commission said it increased its projection for Serbia's economic growth in 2017 to 3.0%, half of a percentage point higher than the forecast made in October.