Serbia with an investment-grade rating from S&P

S&P raised Serbias credit rating to BBB- with a stable outlook. Serbia thus entered the investment grade rating for the first time in history. The move was underpinned by Serbias favorable macroeconomic prospects and increased resilience to external shocks. Compared with pre-pandemic levels, Serbia's real GDP has increased by 18%, foreign exchange reserves have doubled, and gross general government debt has dropped by over 2 percentage points to 48.4% of GDP. Looking at S&Ps forecasts for key macro variables, they align nicely with our view. Real GDP is expected at around 4% y/y this year and an acceleration to 4.3% y/y in 2025. Average inflation figures are seen at 4.5% y/y and 3.4% y/y respectively in 2024 and 2025. Looking ahead, the key signpost to watch will be wider fiscal deficits due to substantial government investments related to Expo 2027 and other capital expenditure. Serbia is allocating approximately EUR 17.8bn, roughly 25% of GDP, to this project and other related projects over the next few years, prompting a temporary freeze of fiscal rules. As a result, fiscal deficits are expected to average 2.4% of GDP from 2025-2027. As far as market reaction is concerned, we expect to see positive developments over the medium term. The investor circle should grow and push overall turnover higher. Looking at price action year-to-date, we can conclude that the move was very much expected, especially on the longer end of the curve with Serbia already trading below Romania. There might be more appeal on the shorter end of the curve for those who move fast.