A new three-year €1.2bn IMF precautionary standby deal agreed in February – necessitated by the wide fiscal and current account deficits and a build-up of bad debt – will keep GDP growth close to zero this year after a 1.8% decline in 2014.
But as policy implementation improves, growth is forecast to rise to 2.8% in 2016 with private investment, exports and consumption all expanding.
Continued pick-up in the EU and the start of recovery in Russia will see a resumption of export growth next year, despite difficulty in avoiding real currency appreciation against the euro. Our forecast of a pick-up in growth to about 3.7% a year in 2017-18, with a mild rise in inflation and gradual deficit reduction, reflects the potential for sustained output, export and investment revival if the government’s administrative and public enterprise reforms stay on track.
Serbia’s strategic position between the EU and Russia will hamper FDI and accession progress this year, but is positive for growth and capital inflow once the international situation calms.