Serbian Slowing Growth May Hurt 2014 Outlook, Nikolic Says

Serbia’s economy grew less than expected in the second quarter, potentially spoiling the government’s 2014 economic outlook even as it stayed on track to meet the official 2 percent growth target this year.

The Balkan state’s output expanded 0.2 percent in the three months to June versus a year ago, weaker than a preliminary 0.7 percent estimate, the Statistics Office said on its website from Belgrade today. First-quarter growth was revised upward to 2.7 percent from a previous 2.1 percent.

Prime Minister Ivica Dacic’s government is trying to jump-start a recovery after two recessions in three years pushed up unemployment and caused the budget deficit to balloon. It is now preparing to host a visit by the International Monetary Fund and wants to secure a financial backstop to help tame rising borrowing costs.

The lower-than-expected second-quarter growth won’t affect the government’s 2013 growth target, said Ivan Nikolic, a member of the central bank Governor’s Council, the regulator’s supervisory body.

“Activity will gather pace in the third quarter because of rising industrial output, and agriculture will pick up again with late crops,” Nikolic said by phone. “But there is concern about 2014.”

Farming Grows

Agriculture led the expansion. It increased 20.5 percent, after 22.4 percent growth in the first quarter. Activity in mining and quarrying more than halved to 2.8 percent, from 6.6 percent, while manufacturing growth slowed to 1 percent. A decline in construction deepened to 42.5 percent, following a 27.7 percent drop in the first three months.

“The question is what will drive growth next year, because agriculture cannot grow more than it did this year and car industry growth has been pretty much exhausted,” Nikolic said. “The main concern, however, remains the fiscal deficit and longer-term fiscal strategy, and those will be discussed with the IMF.”

The IMF will start a week-long technical mission to Serbia tomorrow, focusing its macroeconomic fundamentals, activities related to 2014 budget and long-term fiscal strategy, monetary policy, public debt, pension overhaul and the labor market, the National Bank of Serbia said in an e-mail today.

Biggest Gap

With large parts of the economy in recession, the state should consider “short-term stimuli” including loan subsidies and public investments, the Foundation for Advancement of Economics, or FREN, said in a Sept. 17 report.

It said the government should also take measures to cut the fiscal gap by as much as 2.5 percent of GDP in 2014 from “more than 7 percent of GDP, according to IMF methodology this year,” which represents the biggest shortfall in central and eastern Europe, FREN said.

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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