COVID-19 Update Serbia: Second wave caused new government stimuli

COVID-19 development: Following the virus outbreak in summer and re-introduction of certain restrictions, relaxations in some measures came in late August, as the situation was improving. Currently the virus is largely contained.
Economic development: The first government stimulus program helped avoid a deeper GDP fall during the economic lockdown, -6.4% yoy in Q2 (vs +5.1% in Q1). Accordingly, state consumption grew by +8.9%, whereas other categories were in red, especially exports (-20.7%) and imports (-19.3%) due to closures of the border. Manufacturing and wholesale and retail trade (the main contributors to GDP) fell by -7.7% and -16.7% respectively. Vacation season, the spread of the virus and the end of the government’s stimulus program supported the industrial production slowdown in July (+0.4% yoy) after June’s +2.6%, as well as retail sales (+4.7% yoy) after the +11.5% in June.
Inflation: The consumer price index fell by -0.1% mom in August after growing 0.2% in July due to the seasonal decline in food prices. Annual CPI slightly decelerated to 1.9% yoy in August from 2% in the preceding month, mainly thanks to slower growth of prices of food and non-alcoholic beverage items at 3.5% and alcoholic beverages and tobacco at 5.3%, compared to 4.3% and 6.5% in July. August inflation remained within the inflation target range (3% +/- 1.5pp) of the NBS which supports the flat base rate at 1.25%.
Fiscal policy implications: In Jan-July, the budget deficit stood at RSD 323.7 bn (around 6.5% of GDP, 7m/2019: 48.5 bn RSD surplus) due to the burst in expenditures (+50.2% yoy), while still smaller than expected fall in revenues (-3.6%). Public debt stabilised at 57.8% of GDP, as there were some foreign debt repayments during July.

This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.