Country Report Serbia September 2009

Outlook for 2009-10

• The ten-party governing coalition led by the Democratic Party (DS) is likely to come under increasing strain as the economic crisis generates more strikes and public protest, as well as intra-coalition political? disagreement.
• The prospect of visa-free travel for Serbian citizens in the Schengen area from 2010 looks likely after the European Commission recommended that the visa regime be lifted in early 2010.
• Revenue shortfalls and overspending in the first half of 2009 may require more extensive and deeper spending cuts in a future budget revision, raising the possibility of a winter of discontent.
• A significant correction in the exchange rate is unavoidable. The Economist Intelligence Unit forecasts that the dinar will undergo a real effective depreciation of 7% in 2009.
• We forecast a contraction in real GDP of 4% in 2009, as a result of the poor outlook for domestic and external demand, and limited access to finance. We expect a weak rebound in 2010, to growth of just 0.5%.
• We forecast average inflation of 9.8% in 2009 and of 6.4% in 2010. Inflation could be even higher, depending on the impact of dinar depreciation.

Monthly review

• The failure to form a governing coalition in the municipality of Vozdovac in the capital, Belgrade, will result in a rerun of the election there.
• Tensions in the government coalition have increased, as the ruling parties disagree about the adoption of a controversial media and information bill.
• The Russian president, Dmitry Medvedev, has scheduled an official trip to Serbia for October. The Serbian president, Boris Tadic, made an official visit to China in late August to sign a strategic partnership treaty.
• A further deterioration in current spending in January-July 2009, as well as weak revenue intake, will require the government to cut spending or to raise tax rates to bring down the annual deficit and so meet IMF loan conditions.
• Second-quarter output data for industry and other sectors suggest that the contraction in GDP was steeper than the 3.5% year-on-year decline recorded in the first? quarter.
• The current-account deficit narrowed to US$220m in the second quarter, compared with US$1.1bn in the first quarter and US$2.8bn April-June 2008.

• Highlights
• Outlook for 2009-10: Domestic politics
• Outlook for 2009-10: Kosovo
• Outlook for 2009-10: International relations
• Outlook for 2009-10: Policy trends
• Outlook for 2009-10: Fiscal policy
• Outlook for 2009-10: Monetary policy
• Outlook for 2009-10: International assumptions
• Outlook for 2009-10: Economic growth
• Outlook for 2009-10: Inflation
• Outlook for 2009-10: Exchange rates
• Outlook for 2009-10: External sector
• Outlook for 2009-10: Forecast summary
• The political scene: Rerun of the Vozdovac election carries risks for the DS
• The political scene: Municipal elections
• The political scene: Media law spreads discord in the ruling parties
• Economic policy: Better revenue results are marred by higher spending
• Economic policy: The central bank keeps the policy rate unchanged
• Economic performance: There are few signs of a recovery in output or demand
• Economic performance: Inflation and wage growth slow further
• Economic performance: The current-account deficit continues to shrink
• Data and charts: Annual data and forecast
• Data and charts: Quarterly data
• Data and charts: Monthly data
• Data and charts: Annual trends charts
• Data and charts: Monthly trends charts
• Data and charts: Comparative economic indicators
• Basic data
• Political structure