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Serbia Country Risk Report Q2 2018

Serbia Country Risk Report Q2 2018

Executive Summary

Core Views

Following a slowdown in 2017, growth will gradually pick up in the years ahead. Household consumption will be the primary driver, while both exports and fixed investment will also contribute to growth.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Growth Set To Rebound
Following a slowdown in 2017, growth will gradually pick up in the years ahead. Household consumption will be the primary driver, while
both exports and fixed investment will also contribute to growth. Weak productivity gains stemming from a lack of structural reforms will,
however, weigh on medium-term growth potential.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
External Deficit To Resume Narrowing Trajectory
The widening of Serbia's current account deficit in 2017 will represent a blip, as the deficit will resume a narrowing trajectory over the
coming years, albeit at a moderate pace. There will be few risks associated with financing the shortfall over the near term, given robust
levels of foreign direct investment.
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE EXPORTS IN 2017
TABLE: TOP FIVE IMPORTS IN 2017
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
NBS Dovish Bias To End
The National Bank of Serbia will not cut interest rates further in 2018 and will keep the policy rate on hold in line with a gradual rise of
inflationary pressures. Heading into 2019, eurozone monetary normalisation, alongside rising price pressures, will force the NBS to
begin hiking rates.
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Fiscal Consolidation To Reverse Course
The bulk of recent fiscal consolidation in Serbia is over, with the budget deficit set to rise over coming years. Deficits will, nevertheless,
come in below historical averages while Serbia's public debt will continue to fall, although the high FX composition of the latter will
remain a risk.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES FOR 2017
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
RSD: Weakness Ahead As DM Tightening Accelerates
Following a period of appreciation in 2017, the Serbian dinar will weaken over the short term. Real yields will move in favour of
developed markets as the Fed tightens and the European Central Bank tapers, while the National Bank of Serbia keeps rates on hold in
2018. Longer term, a persistent inflation differential will see deprecation continue in spot terms.
TABLE: CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Serbian Economy To 2027
EU Convergence Key
Serbia's convergence process with the more developed states of Western Europe is expected to continue over the long term, with the
harmonisation of the underlying domestic legal and regulatory framework with that of the EU being a fundamental factor driving growth.
This will lead to marked improvements in Serbia's business environment, enabling greater access to the export markets of EU member
states and enhancing the country's appeal to foreign investors in the process. That said, we caution that political instability, particularly
around Kosovo, poses the greatest risk to our forecasts.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Local Elections To Define National Outlook
Local elections for the City Assembly of Belgrade, Serbia's capital (due before April 2018), will represent a bellwether as to the future
direction of national politics over the coming months, especially with regard to possible early parliamentary elections. While early
national elections before the 2020 schedule date have been ruled out for the time being, they cannot be precluded at some point in the
months ahead.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Unresolved Regional Tensions Remain Despite Agreement With Kosovo
Unresolved regional tensions are expected to continue to hang over Serbia's political risk profile over the long term. In turn, the country's
EU accession prospects and economic growth profile could suffer as a result. Owing to the large diplomatic presence in the region,
which we expect to persist over the long term, we believe it is very unlikely that lingering disputes will devolve into open conflict.
Chapter 4: Operational Risk
Operational Risk
TABLE: OPERATIONAL RISK
Conflict Risk
TABLE: MAIN ACTIVE TERRORIST GROUPS
TABLE: POLITICAL VIOLENCE RISK
TABLE: MAJOR CONFLICT FLASHPOINTS
TABLE: BUSINESS RESPONSE TO CONFLICT RISK
Transport Network
TABLE: ROAD RISKS
TABLE: RAIL RISKS
TABLE: AIR TRANSPORT RISKS
Chapter 5: BMI Global Macro Outlook
EM Growth To Accelerate In 2018 While DMs Plateau
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: SERBIA – MACROECONOMIC DATA & FORECASTS

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