Growth appears strong
Serbian Statistical Office revised its 1Q21 GDP estimate upwards by 0.5pp to 1.7% y/y. Looking at the structure, net external performance was the key positive factor driving growth at the start of the year, while private consumption continued to weigh on headline growth. Due to the mentioned overshooting as well as boosted capex budget by the government, we have already revised our FY21 GDP forecast upwards by 1pp to 6% y/y. Investments seem like the key growth driver this year, while the projected recovery of private consumption in 2H21 should also bring anywhere between 2.5pp-3pp to overall growth figure.
The temporary mismatch between global demand and supply, coupled with shortages of semi-conductors, will lead to some pass-through to inflation and yearly prints are expected to stay around the mid of the target band for most of the year. Hence, we have revised our average CPI forecast upwards by 0.5pp to 2.5% y/y.
After robust monetary easing in 2020 (totaling 125bp cuts) the NBS has kept the key rate unchanged at 1% YTD. With growth outperforming expectations in 1Q21 and considering yet another fiscal stimulus, we don’t expect the NBS to cut further. On the other hand, if inflation expectations remain anchored and the exchange rate stable, we don’t see impetus to hike either.
Due to the announced third fiscal support package (effect of the package on the fiscal result estimated at 2.5% of the GDP), the budget was rebalanced, and the gap is now seen at 6.5% of GDP for the full year. Wider budget gap suggests another euro bond tap, likely after the summer, targeting anywhere between EUR 1-2bn. Public debt should come close to, but below 60% of the GDP.
Serbian Progressive Party, leader of the ruling coalition, fortified its power by assimilating conservative, right-wing populist party SPAS. The move should boost support for the ruling coalition in the Serbian capital Belgrade, where opposition is the strongest. Presidential elections 2022 are approaching, as well as potential snap parliamentary and local elections in the same year. Ruling coalition still enjoys vast support.