May 11 (SeeNews) - The European Commission said on Thursday it has increased its forecast for Serbia’s economic expansion in 2017 to 3.2% from 3.0% projected in February, as domestic demand is picking up.
Gross domestic product (GDP) growth is expected to accelerate to 3.6% in 2018 when the budget balance is forecast to outperform targets and turn to a small surplus, the Commission said in its Spring 2017 Economic Forecast published on its website.
Economic growth is forecast to strengthen mainly on the back of strong private consumption, while exports and investment are projected to remain robust.
"Continued gains in employment and higher income, in particular in the private sector, together with increasing consumer lending and the preservation of the overall macroeconomic stability should underpin the envisaged strong rebound in household consumption," the Commission noted. "Investment growth is expected to remain broadly unchanged, benefitting from FDI inflows and higher government capital expenditure."
The surge in domestic demand and higher international oil prices are forecast to lift consumer prices, but pressures are likely to be contained in the short term as administered price adjustments stay limited and the central bank remains vigilant against excessive exchange rate movement, the Commission said.
Nevertheless, the economy remains exposed to international capital flow reversals, divergences in monetary policies of major central banks, and fluctuations in commodity prices. Besides being sensitive to exogenous factors like the effects of tighter US monetary policy and fluctuations in commodity prices, there are still major risks related to incompletion or reversal of the fiscal consolidation drive and relaxation of structural reform efforts, according to the Commission.
In addition, geopolitical tensions, including in the neighbouring region, are non-negligible and could undermine investment and export demand. Domestically, risks relate mainly to the pace of the envisaged continuation of growth-friendly structural reforms and to maintaining a proper policy mix in the growth phase of the business cycle, the Commission explained.
Although the fiscal stance is expected to be less restrictive, Serbia's general government deficit is forecast to continue shrinking, beating the government’s targets.
Outlook on main economic indicators of Serbia (pct change):
|
2016 |
2017 |
2018 |
GDP |
2.8 |
3.2 |
3.6 |
Private consumption |
0.8 |
2.6 |
3.3 |
Public consumption |
2.3 |
2.5 |
2.5 |
Gross fixed capital formation |
4.9 |
5.8 |
6.0 |
Employment |
5.6 |
1.5 |
1.7 |