BELGRADE (Serbia), April 2 (SeeNews) – Erste Group expects the Serbian economy to enter into a recession in the third quarter of 2020 due to the novel coronavirus disease (COVID-19) outbreak, before growing by a sharp 4.7% in 2021, it said.
"The magnitude of the disruption caused by the outbreak of COVID-19 has prompted the need for further downside revisions. We now expect the Serbian economy to contract by 2.3% y/y in 2020, basing our scenario on gradual normalization during 3Q20," Erste Group said in a report on Wednesday.
Domestic demand will now weigh heavily on the headline gross dometic product (GDP) figures, while net exports should offer some relief, as was the case during the financial crisis in 2009, due to disruptions in the supply chain, Erste Group said. "We expect the economy to rebound sharply in 2021, with GDP growth forecast at 4.7%."
Earlier this week, Erste Group said the expected 2.3% contraction of Serbia's economy in 2020 will make the country the least affected by the coronavirus crisis in Central and Eastern Europe (CEE).
Serbia's exports still beat estimates and even accelerated compared to last year, as the country managed to offset weaker core EU demand with stronger integration in CEE markets and China, Erste Group said.
However, due to the COVID-19 impact on domestic demand and global commodity prices, inflation should fall below the 1.5%-3.5% target band set by Serbia's central bank in March, bottom out around mid-year and then slowly climb back into the target range, Erste Group noted. "Our inflation call thus stands at 1% y/y average in 2020, while FY21 average CPI is seen at 1.7%."
The bank has revised downwards its last economic growth forecast for CEE earlier this week and now expects the average GDP of the region to shrink by 4.7% in 2020. Erste's CEE region also comprises the economies of Croatia, Slovenia, Romania, Slovakia, Poland, Hungary and Czechia.