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BELGRADE (Serbia), December 21 (SeeNews) - Erste Group has lifted its forecast for Serbia’s gross domestic product (GDP) growth in 2018 to 4.3% from 4.0% predicted earlier, on the back of strong domestic demand.
In 2019, the growth rate should stabilise at a somewhat lower but still robust level of 3.5%, Erste Group analysts said in their latest macroeconomic outlook report on Serbia.
Serbia's domestic demand will keep making a positive and stronger contribution, supported by the continuation of the stable private consumption profile, more expansionary fiscal stance and accelerating investments, Erste Group said.
"On the other hand, we expect net exports to make a negative contribution, due to stronger pressures on imports coming from the stronger performance in all sectors."
After years of fiscal consolidation, a more expansionary tone for fiscal policy is expected, which is an important change for the economic policy mix in Serbia. Under these circumstances, the central bank will remain on hold during most of 2019, while a modestly hawkish stance could be seen towards the end of the year, as markets start to price in changes in the monetary policy tone of the European Central Bank (ECB).
In the coming period, Serbia's bond yields are seen moving at similar levels, with some upside pressures in the mid-run coming from a more expansionary fiscal tone, reversing the monetary policy tone of the ECB and the rise in benchmark paper yields, Erste Group said.
The macro and fiscal environment, gradually increasing capital inflows and increased local currency lending will remain supportive for the Serbian dinar, Erste Group said.
"On the other hand, the domestic demand-supported rise in imports and seasonal factors will play a key role on the opposite side. That said, we see the EUR/RSD remaining broadly stable in the region of around 118-119, with the mid part of the band more likely in the coming months, steered by occasional NBS interventions."
In September, Erste lowered its forecast for Serbia’s economic expansion in 2017 to 2.1%, from 2.5% projected in June, due to disappointing figures in the first half of the year.