Country Report Serbia April 2009

Outlook for 2009-10

• The ten-party governing coalition led by the Democratic Party (DS) is likely to come under increasing strain as austerity policies generate dissension in its ranks and economic hardship leads to rising popular dissatisfaction.
• The government insists that Serbia will not recognise Kosovo's independence. The International Court of Justice begins deliberations on Serbia's appeal against the legality of Kosovo's independence declaration in April.
• Severe financing constraints and the new IMF agreement necessitate a policy tightening to narrow the large budget and current-account deficits, and the government may be severely tested by mass protests.
• A significant correction in the exchange rate is unavoidable. The Economist Intelligence Unit forecasts that the dinar will undergo a real effective depreciation of about 10% in 2009.
• We forecast a contraction of real GDP growth of 2% in 2009 as the outlook for the world economy worsens and Serbia's economy is hit hard by plummeting demand. We expect a weak rebound, of just 0.5% growth, in 2010.
• We forecast average inflation of 9.6% in 2009 and of 6.4% in 2010. Inflation could be even higher, depending on the impact of dinar depreciation.

Monthly review

• Dissension within the ruling coalition is growing as the government tries to agree on a package of austerity measures tied to the new IMF stand-byagreement.
• The DS leader and president, Boris Tadic, has appealed for party unity and an end to in-fighting.
• An anti-discrimination law generated significant controversy in March, but was eventually passed by parliament in the face of opposition from the main religious communities, and from ruling and opposition politicians.
• The government signed a new two-year IMF stand-by agreement worth 3bn (US$4bn) in March.
• The IMF approved an expansion of the forecast budget deficit to 3% of GDP, but the government must make budget savings equivalent to 1bn.
• All economic indicators pointed to a worsening slump in demand in the first quarter of 2009 and to the inevitability of recession in 2009.

Source: Country Report

This report covers the following industry codes:
SIC Code: 15
NAICS Code: 23