Country Risk Service Serbia November 2012

Country Risk Service Serbia November 2012

Overview

A new government was formed in July 2012, following an election in May. It comprises the Serbian Progressive Party (SNS), the Socialist Party of Serbia (SPS), United Regions of Serbia (URS) and independents. Tomislav Nikolic of the SNS won the presidential election in May. The Economist Intelligence Unit does not expect a significant break in foreign or economic policy, but there will be pressure to address popular economic and social grievances, which will result in tensions with the IMF over a new stand-by loan programme. There will be constant external pressure on the government to normalise relations with Kosovo in return for further EU integration. We estimate a real GDP contraction of 1.4% in 2012, as a result of a return to recession in the euro zone. We forecast average real GDP growth of 3.9% in 2013-17, and a gradual moderation in the current-account deficit after an expansion in 2011-12.

Key changes from last month

Political outlook

External pressure to make concessions on Kosovo in return for further EU integration is likely to result in greater ambivalence about the benefits and costs of EU membership among the population and the political elite.

Economic policy outlook

The budget and public debt position has deteriorated dramatically. The recent budget revision for 2012 has not gone far enough to satisfy the IMF that the authorities are taking fiscal consolidation sufficiently seriously. A new IMF loan agreement is unlikely to be signed until 2013.

Economic forecast

Informal indications suggest that the drop in agricultural output will be much greater than previously expected, at around 20%, having a negative impact on real GDP growth. We have revised down our real GDP estimate for 2012 to a contraction of 1.4% as a result.

Please Note: Due to the Nature of This Report The Toc is Not Available