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BELGRADE (Serbia), June 16 (SeeNews) - Erste Group said it has lowered its forecast for Serbia’s economic expansion to 2.5% in 2017, from 3.1% projected in March, due to the weaker than initially expected gross domestic product (GDP) growth in the first quarter.
The forecast for Serbia’s economic growth in 2018 was cut to 3.0% from 3.4% previously, Erste Group's analysts said in their latest macroeconomic outlook report on Serbia published on the bank's website earlier this week.
"The 1Q17 GDP flash estimate came as a negative surprise, as the growth figure landed at a modest 1.2% y/y and short-term indicators for April are not encouraging," the analysts said. "Looking ahead into 2017, we see GDP gradually picking up, with the growth trajectory mostly supported by rising domestic demand, while the net export performance could take on a more neutral role, as stronger domestic demand will put pressure on the import side."
The consumption an investment profile should be supported by improvements in the labour market, an increase in wages in the private and public sectors, continued support from stronger loan activity and improvement in overall economic sentiment, the analysts said.
"Finally, the stable economic outlook for main trade partners will be supportive for the export side, but strengthening domestic demand suggests more upside pressures on the import side, so we envisage a mildly negative contribution from net exports," they added.
Headline inflationary pressures are expected to ease in the coming months and CPI to steadily move in the upper part of the target interval of between 1.5% and 4.5% of Serbia's central bank, NBS, towards the year-end, with average CPI standing around 3.4% year-on-year, Erste said.
"Looking down the road, we expect the NBS to keep the key rate unchanged in 2017, while it should reverse its policy tone in 2018, as we expect an ECB tapering no earlier than in 1Q18. Moreover, FED hikes are expected to continue, which is an important determinant of capital flows in emerging markets, such as Serbia," the analysts explained.
Earlier this month, Serbia's statistical office said the country's real GDP growth slowed to 1.2% year-on-year in the first quarter of 2017, from 2.5% in the previous quarter. On a quarterly comparison basis, Serbia's economic expansion slowed to 0.1% in the first quarter of 2017, following an increase of 0.2% in the fourth quarter of 2016 according to seasonally adjusted data.