Serbia Economy Profile 2012

Serbia’s GDP continued to expand in the first half of 2011, but there are signs that the recovery is stalling for now. With investment and exports as the main drivers, the estimated first-half year GDP growth (2¾ %) was in line with previous projections. However, a large negative trade shock is percolating through the region, as reflected in a sudden drop-off in steel demand from regional trading partners.

Labor shedding in the private sector has continued. While the public sector has maintained its (high) employment level, the private sector has shed about 20 % of its jobs since 2008. With a significant number of jobs in companies that are dependent on subsidies, the official statistics may still not fully capture Serbia’s labor market malaise.

Headline inflation has peaked, and the National Bank of Serbia (NBS) responded by reversing its policy stance. Headline inflation in April reached almost 15 %, but has declined substantially since then on the back of a reversal of food price inflation, in turn supported by the good agricultural season and lower global commodity prices. The NBS reversed its policy stance in June, cutting the policy rate by 125 basis points in several steps, to 11¼ %.

The dinar had appreciated considerably earlier in the year supported by portfolio investments attracted by high dinar yields, but with increased tensions in the euro area, and in line with regional peers, it subsequently lost much of its previous gains. Amid substantial volatility in the foreign exchange market, but also increased trading volumes, the NBS conducted only modest foreign exchange interventions.