Serbia: GDP growth eases in the second quarter
August 31, 2022
The Serbian economy expanded at a slower clip of 3.9% year on year in the second quarter (Q1: +4.3% yoy). While this marked the worst performance since the first quarter of 2021, the headline print constituted a solid outturn nonetheless.
The moderation reflected softer household consumption growth (Q2: +4.0% yoy; Q1: +7.0% yoy). Private consumption was hampered somewhat by greater price pressures amid elevated energy and food prices due to the war in Ukraine. On the other hand, government consumption (Q2: +4.5% yoy; Q1: +2.5% yoy) and fixed investment growth (Q2: +1.7% yoy; Q2: +1.1% yoy) accelerated and limited the headline moderation.
On the external front, exports of goods and services growth accelerated from 19.7% in the first quarter to 20.1% in the second. Exports were partially aided by a stronger tourism sector; arrivals and overnight stays expanded at a stronger annual pace in the quarter. That said, despite softer import growth of goods and services (Q2: +16.9% yoy; Q1: +28.6% yoy), the external sector weighed on the headline reading for the fifth consecutive quarter.
On a seasonally-adjusted quarter-on-quarter basis, economic activity expanded 1.2% in Q2, contrasting the previous period's 0.6% contraction. Q2's reading highlights that underlying momentum firmed despite the fallout from the war in Ukraine.
The Russian invasion of Ukraine and rising global recession fears continue to cast a shadow over the near-term prospects. Following the beginning of the war, the cost of food and energy commodities has surged, reducing households’ disposable incomes and increasing inflation expectations. Similarly, rising commodity prices and heightened macroeconomic uncertainty are likely undermining corporate confidence and restraining fixed investment. A tight labor market and the economic recovery from the pandemic, on the other hand, should provide some relief. The relaxation of Covid-19 limits could help the tourism industry recover as well.
Mate Jelic, analyst at Erste Bank, called for caution:
“After solid performance in 1H22, we expect growth to slow in 2H22 albeit remain positive. Slowdown stems from expected weakening of external demand, as there are clear signs growth in core EU countries is deteriorating. Industrial production is partially hindered by supply-chain problems which could again lead to reactivation of short-time work in certain sectors due to partial production stops. On the other hand, support should come from service sector recovery as well as targeted support by the government to provide relief from the energy spike.”