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Erste raises Serbia's GDP growth fcast, expects inflation to pick up

Erste raises Serbia's GDP growth fcast, expects inflation to pick up None

BELGRADE (Serbia), March 13 (SeeNews) - Serbia's real economic growth is expected to quicken to 3.1% in 2017 and 3.4% in 2018 from 2.8% in 2016, driven by strengthening domestic demand, according to Erste Group analysts.

In its previous forecast in December, Erste saw Serbia's real economic growth at 2.9% in 2017 and 3.2% in 2018.

"Looking forward, we see positive developments to continue, with strengthening domestic demand playing the key role, while net exports should be more neutral," the analysts said in their latest macroeconomic outlook report on Serbia published on Erste Group's website last week."The consumption profile should be supported by improvements on the labour market, an increase in wages, continued support from consumer loans and improvement in overall economic sentiment."

The investment environment should also be favourable, with stronger demand, pro-business legislation and improving lending potential in the banking sector, including a fall in non-performing loans (NPLs) playing key roles, the analysts said. 

"Finally, the stable economic outlook for main trade partners will be supportive for the export side, but strengthening domestic demand and stabilising oil prices suggest more upside pressures on the import side, so we envisage a positive but more modest contribution from net exports," they added.

Inflation is expected to gradually pick up, supported by a low base effect, less benign fuel prices and stronger domestic demand. These factors should push the inflation figure inside the target interval of between 1.5% and 4.5% of Serbia's central bank, NBS, with the headline figure standing in the region of 2-2.5% y/y, Erste said.

"Erste expects the central bank to gradually reverse its loose policy stance, with a gradual acceleration of inflation, lower inflation target interval and expected hikes by US Federal Reserve (Fed) playing key roles. We do not expect the NBS to move before July, as policy-makers should wait for the results of the presidential election in April and official Fed decision in June, given that Serbian bond and FX markets are strongly exposed to US investor sentiment," the analysts explained.

Last month, NBS said it expects Serbia's economic growth rate to rise to 3.0% in 2017 from 2.7% in 2016 on the back of implementation of infrastructure projects and improved business environment. Serbia's economic growth is forecast to accelerate further to 3.5% in 2018, as increasing investments will support a sustained rise in demand and exports, NBS said.

In 2015, Serbia's GDP expanded by a mere 0.8% after contracting by 1.8% in 2014, due to the devastating floods that hit the country, causing damages and economic losses estimated at some 1.5 billion euro ($1.6 billion).

($ = 0.937004 euro)

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