Economic review After a modest export led economic recovery in 2011 Serbia

Economic review after a modest export led economic

This preview shows page 51 - 52 out of 222 pages.

Economic review After a modest export-led economic recovery in 2011, Serbia entered into recession in 2012. Real GDP declined by 1.9%. GDP per capita stood at EUR 4,100. The contraction of the economy was mainly due to a slowdown in net exports and weak domestic demand. On the positive side, the automotive sector was support- ive, with production gaining pace in the second half of 2012. Adverse weather conditions (summer drought) resulted in an agricultural production slump, contributing to the fragile econom- ic development. The weak labour market, along with deteriorat- ing disposable incomes in light of persistent inflationary pres- sures, resulted in an on-going private consumption weakness. The unemployment rate remained one of the highest in the region with 24% at year-end 2012. The current account deficit widened as automotive exports could not compensate other factors such as the weaker harvest or a steel mill closure that dragged the steel industry down. The fiscal deficit amounted to 6.5% of GDP; the increase versus 2011 was partly due to a pre-election increase in expenditures. Inflation was on the rise after bottoming out in the second quarter but decreased, nonetheless, compared to 2011 and amounted to 7.4% in 2012. The main drivers of this development were food prices amid adverse weather conditions, oil prices, exchange rate weakness and one-offs coming from tax increases (VAT and excise tax). The exchange rate was volatile despite interventions of the national bank. After considerably depreciating against the euro until August 2012, the Serbian dinar started to strengthen again reflecting an improving trade balance as car export produc- tion started and the National Bank of Serbia’s tightened reserve requirements. The National Bank of Serbia increased the base rate several times from 9.75% end of 2011 to 11.25% at the end of 2012 and 11.50% in January 2013. The European Council granted candidate status to Serbia in March 2012, no date has yet been set for starting accession talks. In February 2012, the International Monetary Fund (IMF) sus- pended a USD 1.3 billion stand-by agreement due to the previous government’s relaxation of the fiscal stance; although a supple- mentary budget was adopted in September, talks will not resume before spring 2013. Key economic indicators – Serbia 2009 2010 2011 2012e Population (ave, million) 7.4 7.4 7.3 7.2 GDP (nominal, EUR billion) 29.0 28.0 31.1 29.8 GDP/capita (in EUR thousand) 3.9 3.8 4.3 4.1 Real GDP growth -3.5 1.0 1.6 -1.9 Private consumption growth na na na na Exports (share of GDP) 20.6 26.5 27.1 24.6 Imports (share of GDP) 38.3 43.5 44.6 41.0 Unemployment (Eurostat definition) 16.1 19.2 23.0 24.0 Consumer price inflation (ave) 8.4 6.1 11.2 7.4 Short term interest rate (3 months average) 14.4 10.8 12.9 11.6 EUR FX rate (ave) 94.0 103.1 102.0 113.1 EUR FX rate (eop) 95.9 105.5 104.6 113.7 Current account balance (share of GDP) -7.1 -7.4 -9.3 -11.3 General government balance (share of GDP) -4.5 -4.7 -5.0 -6.5 Source: Erste Group Market review Due to the high level of the “euroisation”, the National Bank of Serbia continued to promote its strategy of encouraging the use of the Serbian dinar. In late July 2012, the new government passed a
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