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:
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.