Serb Central Bank Cuts GDP Forecast to 2% on Euro Area

Serbia’s economy will grow less than expected this year because of the deteriorating economic outlook in the euro area, its key trading partner, and subdued domestic demand.

Gross domestic product will expand 2 percent in 2013, compared with an earlier 2.5 percent forecast, the Belgrade-based Narodna Banka Srbije said in its quarterly inflation report today. The economy expanded an estimated 1.9 percent in the first quarter, led exclusively by car industry and crude oil product exports.

“According to the National Bank of Serbia forecasts, GDP growth in 2013 will be around 2 percent,” the bank said in the report. The key contribution will come from agriculture and industrial production.

The first-quarter economic growth was accompanied by the strengthening dinar, slowing inflation, a 4.1 percent increase in unemployment from December, a 0.4 percent contraction in bank lending activity and an increase in non-performing loans by 1.3 percentage points to 19.9 percent, according to the report.

Inflation should slow to below 10 percent by the end of the second quarter for the first time since August 2012, allowing the central bank to “consider the possibility of a further monetary-policy relaxation” as the number is expected to return to the tolerance band of 2.5 percent and 5.5 percent by October and stabilize around the target of 4 percent, plus or minus 1.5 percentage points in 2014.

The central bank cut its benchmark interest rate by half-point to 11.25 percent on May 14 for the first time in 16 months as the strong dinar and weak demand helped it keep the lid on prices.

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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