In the first quarter of 2024, Serbia’s gross domestic product (GDP) experienced a notable real growth of 4.7% compared to the same period in the previous year. This growth was largely driven by the service sector (excluding trade), which contributed 1.7 percentage points (pp) to the overall GDP increase, according to the latest report from the Republic Statistical Office (RZS).
Key drivers of GDP growth
Private consumption saw a significant real growth of 4.4%, adding 2.8 pp to the GDP. Investment activity also rose by 7.3%, contributing an additional 1.7 pp. Exports grew by 1.1%, while imports increased by 3.2%, contributing 0.5 pp and 1.8 pp to economic growth, respectively.
Inflation and macroeconomic projections
Forecasts for the third quarter of 2024 indicate a further slowdown in the year-on-year growth rate of consumer prices, albeit at a slower pace than in the first quarter, with an anticipated growth rate of around 3.9%. Despite this, inflationary expectations from consumers and the retail sector suggest that the annual growth rate will hover around 5%.
Analysts from the Republic Institute of Statistics caution against prematurely celebrating an inflationary decline due to uncertainties related to the agricultural season, food prices, and the volatility of Brent oil prices, which affect fuel costs in Serbia. They highlight that the rate of inflation reduction has been almost twice as slow in 2024 compared to the beginning of 2023.
Energy prices and impact on inflation
From the start of 2024, energy prices, particularly for fuel and electricity, have been the primary drivers of consumer price inflation. The increase in Brent crude oil prices from January to April 2024 is expected to influence fuel prices in Serbia with a lag of one to two months. A significant drop in crude oil prices in May will likely lead to cheaper fuel in June. The leading fuel price indicator from RZS predicts continued volatility in fuel prices in the third quarter of 2024, maintaining an average annual growth of around 6%.
Electricity prices for households and gas are also expected to contribute to the inflation rate, with a projected decline in growth from 15% year-on-year in the first four months to 7.5% from May to October. By the fourth quarter, the growth effect from November 2023 will have dissipated.
Excise duties and their effects
The substantial increase in excise duties on alcoholic beverages and cigarettes from May 2024, coupled with the regular July excise adjustment for cigarettes, is expected to raise the year-on-year price growth for this category by 8.6% in the third quarter, contributing 15.6% to the overall consumer price growth rate.
Industrial and construction sector growth
In the second quarter of 2024, the gross added value (GVA) of the industrial sector is estimated to grow by around 3.0% year-on-year. Significant contributions are anticipated from the production of intermediate products (excluding energy) and non-durable consumer goods, particularly in the food, metal, and electronic products sectors.
The construction sector recorded a remarkable year-on-year VAT growth of 14.2% in the first quarter of 2024. This trend is expected to continue with a growth rate of 12.3% in the second quarter, driven by major infrastructure projects such as the modernization of the Hungarian-Serbian railway and the construction of the Fruškogorsk corridor.
Economic climate and sentiment
The Economic Sentiment Indicator (ESI), which measures producers’ and consumers’ views on economic trends and stability, was 105.1 in the first quarter of 2024. This represents an increase of 3 percentage points compared to the previous quarter and 12.5 pp above the 2020 average, which was impacted by the COVID-19 pandemic. However, the ESI is still 7.9 pp below the pre-pandemic 2019 average of 113.
This growth reflects optimistic expectations across all sectors, including consumption, construction, manufacturing, services, and retail.
