RS: Flash estimate shows economy expanded 3.1% y/y

According to a flash estimate from the Statistical Office, the Serbian economy grew by 3.1% y/y in 3Q24, which was below both our and Bloomberg consensus estimate. While detailed structural performance data is yet to be released, it is likely that unfavorable weather conditions and severe drought during the quarter weighed on agricultural output. Additionally, trade development deteriorated as import coverage averaged 72% during the quarter, the lowest level since the end of 2022.

Despite these challenges Serbia should outperform its peers both this year and in the medium term. Consumption is expected to remain the main driver of GDP growth over our forecast horizon. Investment activity also looks promising, as suggest by strong FDI inflow, and should continue in a similar fashion after the recent credit rating upgrade to investment grade. Although key EU partners, notably Germany, are experiencing sluggish growth, manufacturing output remains strong in the food, metals, and automotive sectors. Public investment is also expected to contribute positively to headline growth, with budgeted CAPEX expenditure of around 7% of GDP.

However, net exports are likely to remain a drag on growth, as imports are expected to accelerate due to strong consumption and investment patterns, while slow EU recovery hinders export potential. Currently, we maintain our FY24 and FY25 GDP forecasts at 4% and 4.5% y/y, respectively, but acknowledge minor downside risks due to slower than expected recovery in key trading partners.