Country Report Serbia March 2009

Outlook for 2009-10

• The fractious governing coalition led by the Democratic Party (DS) is likely to remain intact, although there is some risk of an early election, especially if economic hardship generates widespread social unrest.
• The government continues to insist that Serbia will not recognise Kosovo's independence. However, despite some hardening of rhetoric, there has been an overall softening of policy on Kosovo.
• Severe financing constraints will necessitate a policy tightening to narrow the large current-account deficit. The government is unwieldy, but probably strong enough to push through fiscal tightening in 2009.
• 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 assume that Serbia will need to borrow a larger sum than agreed under its original stand-by agreement with the IMF, in order to cover its budget and current-account deficits.
• We forecast zero real GDP growth in 2009but with considerable downside risksand expect a weak rebound, to 2% growth, in 2010.
• We forecast average inflation of 9.2% in 2009 and of 6.4% in 2010. Inflation could be higher, however, depending on the impact of dinar depreciation.

Monthly review

• The ruling coalition has moved to stop the blocking of parliamentary proceedings by the opposition.
• Tomislav Nikolic's Serbian Progressive Party (SNS) has again made overtures to Vojislav Kostunica's Democratic Party of Serbia (DSS), suggesting that the two parties contest the next election on a joint list.
• A new statute that defines the autonomy of Serbia's northern province of Vojvodina has engendered further divisions in the government coalition.
• The central budget ran an estimated deficit of 2.2% of GDP in 2008, owing to strong growth in current spending and a deceleration of revenue growth.
• On March 2nd the National Bank of Serbia (NBS, the central bank) decided to hold its two-week repo rate at 16.5%, citing high inflationary expectations in the first quarter of 2009.
• All economic indicators pointed to a sharp slowdown in the fourth quarter of 2008, with the NBS estimating fourth-quarter growth at 2.9% year on year.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;53
NAICS Code: 22;44