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2021/12/14 / Erste Group Research

Recovery on track but political risks loom

Real GDP growth rose 6.9% y/y in 1H21, reflecting a broad-based expansion. Still, strong private consumption footing and robust export performance stand out. Household consumption rose 7.2% y/y, while exports are up 30% y/y in the period. At the same time, imports have risen 18.7% y/y thus allowing for an overall positive external contribution to growth in 1H21. Finally, public spending and investment activity recorded low single digit growth rates.

High-frequency indicators suggest growth momentum has carried over into 2H21. While growth momentum appears strong, several risks dominate the outlook; a prolonged adverse impact from the pandemic but mostly the current political deadlock which can be characterized as the worst unity crisis since war times. Bottom line, we decided to lift our FY21 GDP forecasts by 1.1pp to 5.6% y/y, followed by a 3.7% y/y and 3% y/y expansions in 2022 and 2023 respectively although risk for the upcoming years is to the downside.

2021 was quite a volatile year in terms of price developments, as we went from deflation in 1Q21 to a 4.3% y/y print in October. Recent inflationary pressures stem from supply side disruptions but are projected to ease from mid-2022. Still, next year’s average CPI is seen at 3% y/y, before easing to 1.9% y/y in 2023.

The C/A gap remained relatively unchanged after 1H21 compared to the end of last year, at 3.5% of GDP. Net FDI inflow accelerated to 2.4% of the GDP, vs 1.6% at the end of 2020, boosted by reinvested earnings from the banking sector. We expect the C/A gap to remain broadly unchanged next year.

On the political front, things escalated recently after the parliament of Republika Srpska entity adopted conclusions which aim to unilaterally take over state-level competences in the areas of fiscal, judiciary, defense and security matters as well as a new constitution for the entity. Leaders of the opposition parties in the Serbian entity, leaders from the Bosnian entity as well as almost the whole international community came out openly and strongly against this plan warning great chaos could result from this unilateral action.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focus-
Currency in focus-
Sector in focus-


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