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2023/03/10 / Erste Group Research

Inflation remains the key piece of the puzzle

Despite the energy shock and ensuing record-high inflation, the Serbian economy managed to avoid a technical recession. After the -0.7% q/q contraction over the summer, the economy expanded 0.7% q/q in 4Q22 (0.4% y/y), thus meeting our 2.3% y/y growth forecast for the year. Meanwhile, data suggests a soft landing for the economy. We keep our FY23 GDP forecast unchanged at 1.6%, but with risks now looking more balanced than three months ago.

The inflation grip is still firm, owing to the adjustment of electricity and gas prices, the delayed pass-through of previous commodity spikes and the tight labor market, suggesting a continuation of the hawkish monetary stance in 2023. We expect the inflation average similar to last year’s figure, returning to the target range in 2Q24.

NBS is most likely very close to the end of its year-long tightening cycle with another, final, 25bp hike possible in April, should core inflation continue to march higher in the coming months. After that, we expect the NBS to remain on hold until inflation returns within the target band, likely in 2Q24, which should allow for gradual easing of the monetary stance as of 1Q24.

After signing an SBA with the IMF and issuing a dual-tranche Eurobond in January, the country has enough flexibility to sit and wait for more clarity with respect to the yield outlook before closing the refinancing story.

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General information

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


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