March 23 (SeeNews) - Serbia's gross domestic product growth is expected to pick to 1.5% in 2016 on the back of a continued robust performance of investments courtesy of a more stable economic environment, pro-business legislations and a bad loans resolution programme that will improve lending potential in the banking sector, Erste Group Research said.
In 2015, Serbia saw an economic growth of 0.7% with investments and net exports playing the most supportive role, while private consumption was still weighing on the headline figure, Erste said in a report published on Tuesday.
On the policy front, Erste sees room for additional, but less pronounced, monetary easing, given the low inflationary environment and internal stabilization.
In early 2016, Serbia's central bank cut the key rate to 4.25% somewhat sooner than either Erste or the markets expected. "We still see some room for additional cuts, as low inflation expectations could keep the CPI figure anchored at low levels," the analysts noted.
Erste projects that Serbia's consumer inflation will grow slightly to 2.3% in 2016 from 1.7% a year earlier. Private consumption outlook is challenging, given the still weak labour market and the effects of potential developments on structural reforms front, the report added.
"We could see inflation gradually moving towards the middle of the target band throughout 2016, where we see the low base effect, fading effects of low food prices and stabilization of economic activity as the main supportive factors, while low oil prices and the low inflationary environment in the EU should pull in the opposite direction," Erste commented.
Fiscal developments are expected to remain stable, with the share of the general government deficit staying relatively flat at round 3.7% of GDP. However, there are challenges related to the reforms agenda, which has been additionally delayed by the snap elections to be held on April 24.
In terms of politics, Erste added that minor changes in the government can be expected. "We have witnessed some tensions between the ruling coalition partners SNS-SPS, as well as significant dissonance between the two-column democratic opposition parties. Bottom line: with SNS still holding its strong position, we do not expect any major changes in the tone of domestic or external policy."
In 2017, Erste sees Serbia's GDP growth rising to 2.1%, while inflation is expected to jump to 3.1%.