Serbia Watch: Weak industry and retail sales performance
After a strong start in January (+4.1% yoy), industrial production slowed in February (+1.9% yoy) due to manufacturing. Meanwhile, retail trade moved into the red zone again, amid growing financing and energy costs.
Following the healthy start in January (+4.1% yoy), industrial production slowed down its pace in February (+1.9% yoy), as manufacturing moved again to the negative territory (-3.7% yoy) after being positive for one month in January. Electric energy production performed quite well, due to comparatively low temperatures, posting growth of 29.6% yoy, as mining fell by 1% yoy. The weakening in the manufacturing sentiment is not a surprise, given the increased financing cost, decline in the domestic and external demand and electric energy and gas prices hikes agenda throughout 2023 and 2024. Most sectors (15 out of 24) were in negative territory, whereas growth was observed in the production of optical cables, vehicles, basic pharmaceutical products and tobacco products.
Retail trade (constant prices) fell by -3.8% yoy in February after 1.8% yoy growth in January, supported by the growing food prices and minor adjustments in the real wages in the private sector. Food and non-food consumption fell by -5.3% yoy and -6% yoy respectively, while oil consumption, being the main retail trade drivers in the past months, delivered only marginal growth of 3% yoy.
Exports and imports slowed their growth dynamics this year, as compared to the last year. Exports slowed due to less demand coming from EU and imports due to less energy imports. Thus, exports grew in February by 17.9% yoy while imports by 2.7% yoy, resulting in a moderate foreign trade deficit (+27.4% yoy)
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Ljiljana GRUBIC
Serbia Ljiljana joined Raiffeisen in 2001 as specialist for banking credit risk analyses, later enlarging its focus to municipalities and insurance credit risk analyses. In 2007 she moved to research team, becoming equity research analysts and afterwards in 2010 expanding its analytical skills to macro-economic analyses, becoming Economic Research Specialist. Thus, her main focus is on the Serbian macroeconomy. She is a speaker at corporate/investors conferences and roadshows organized within the Raiffeisen bank. In her spare time, she enjoys hiking and dancing.
After a strong start in January (+4.1% yoy), industrial production slowed in February (+1.9% yoy) due to manufacturing. Meanwhile, retail trade moved into the red zone again, amid growing financing and energy costs. |
The monthly dynamics in retail prices repeated in February (+1.4% mom) just like it was in January, supported by the ongoing growth in food prices (+2.7% mom). However, the annualized print went to 16.1% yoy after 15.8% in January 2023. |
The Executive Board of the National Bank of Serbia (NBS) continued at an unchanged pace, lifting the benchmark rate by another 25bp to 5.75%. |
As the negative terms-of-trade shock is fading on forward-looking foreign exchange markets, it's back to the usual suspects: inflation, central banks and interest rates. Recent weeks have been characterized by an inflation re-awakening, which triggered a substantial hawkish re-pricing of global central banks. In spite of interest rates moving more or less in tandem on both sides of the Atlantic, the market environment was US dollar positive. In Central Europe this, however, did not prove to be a substantial headwind until now as exchange rates stabilized around rather strong levels. We are cautious that current valuations can endure over the medium-term not least due to narrowing interest rate differentials between the ECB and CE-3 central banks. In Eastern Europe the strong depreciation of the Russian and Belarusian rouble over recent months might have come to a halt and limits the depreciation potential for the rest of the year. In Ukraine, the hryvnia became more balanced and we upgraded our forecasts in response. Also in Serbia the commitment to a stable exchange rate remains strong. This issues features:
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The Serbian economy escaped the recession in Q4 2022, with GDP growing by 0.7% qoq after falling by 0.7% qoq in Q3 2022. In annual terms, the economy lost its dynamics (+0.4% yoy) amid weak performance of agriculture and construction. |