Serbia: Outlook weakened due to both local and global factors

Political tensions will take a bite into growth this year

Serbian economy grew by 3.3% y/y in 4Q24, wrapping up FY24 real GDP at solid 3.9% y/y. The release shows some interesting signs. Household consumption remains the locomotive of growth but both public spending and investments have slowed. We link both to high geopolitical uncertainty, both local and global. Compared to our previous outlook from December, macroeconomic prospects have deteriorated. Due to nationwide protest after a tragic accident in Novi Sad, PM Vucevic resigned, which led to the fall of government. A new government has to be appointed by March 20th or parliamentary elections have to take place. Such a situation implies significant loss of public investment momentum in 1H25. Private consumption should continue to support growth, albeit to a lesser extent due to base effects, still high inflation as well as occasional mass boycotts of retail shops. Additionally, the biggest national oil company NIS is on the verge of US sanctions due to its majority Russian ownership. As far as external demand side of the equation, we expect another year of negative net export contribution given still fragile EU growth and high import dependence for most of the capital expenditure projects. Bottom line, we have cut our FY25 real GDP growth by 0.7pp and now expect to see 3.8% y/y growth followed by 4.3% y/y expansion in 2026. 

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