NATIONAL BANK OF SERBIA
Opening remarks at the presentation of the Inflation
Report - February 2019
Željko Jović, Vice Governor
Dr
Belgrade, 13 February 2019
Ladies and gentlemen, esteemed members of the press, dear colleagues,
Welcome to the presentation of the February Inflation Report. We will give you an overview of the
current macroeconomic developments, our new inflation and economic activity projections, as well
as monetary policy decisions in the period since the previous Report.
To begin with, I would like to stress that the year 2018 was marked by positive economic trends.
According to the preliminary data of the Serbian Statistical Office, GDP growth equalled 4.4%, which
is its highest increase in ten years. Though the second half of the year saw a slowdown in external
demand growth, domestic factors are to be credited for the high growth rate. Here I primarily have
in mind the improvement of the business climate, favourable financial conditions, positive labour
market trends, as well as the accelerated implementation of infrastructure projects. Growth forecast
for this year has been kept at 3.5%, while in the following years we expect growth to pick up further
to around 4%, resting on sustainable grounds.
Chart 1 Chart 2
Inflation projection GDP growth projection
(y-o-y rates, in %) (y-o-y rates, in %)
6 8
7
5
4 6
5
3
2 4
3
1
0 2
1
-1
0
-2
IV I II III IV I II III IV I II III IV I II III IV
12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12
2016 2017 2018 2019 2020
2016. 2017 2018 2019 2020
Source: NBS.
Source: NBS.
Even in conditions of strong economic growth, inflation continued to move within the target
tolerance band (3.0±1.5%), in accordance with our expectations. It has been low and stable for more
than five years straight - in December it measured 2.0% y-o-y, which is its average value for the
whole of 2018 as well. For the following two years, i.e. until the end of the projection horizon, we
expect stable inflation movements within the target band.
Serbia's economic programme continues to yield strong results, as was recently noted by the
International Monetary Fund. Favourable fiscal trends continue - in 2018, for the second year in a
row, the budget posted a surplus and the central government public debt decreased to 53.6% of
GDP at the end of the year. In January it was somewhere around 50% of GDP. The fiscal policy, in
full coordination with the monetary policy, is providing an impetus to economic growth, without
giving rise to inflationary pressures - the government's rising capital expenditures contribute to the
rise in investment, while higher pensions and wages in the public sector are conducive to sustainable
growth in consumption.
In accordance with our projections, the current account deficit in 2018 maintained its share in GDP
at the level from 2017 (5.2%), although imports increased on the back of higher investment and
global oil price hike, and external demand slowed down. At the same time, for the fourth year in a
row, the high net inflow of FDI, equalling EUR 3.2 bn, was more than sufficient to cover the current
account deficit (143.4% coverage).
The path to achieving the above results was paved by the adopted economic policy measures that
were appropriate and timely. Their integral part is the monetary policy which maintained the price
and financial stability and thereby contributed significantly to a considerable acceleration of
economic growth and improved outlook for the coming period. It is particularly important to note
that stability was ensured amid growing uncertainty in the international environment, which attests
to the efficiency of monetary policy and measures undertaken by the National Bank of Serbia.
Another important result of these measures is the share of non-performing loans in total loans that
was reduced to 5.7% at end-2018, its new lowest level, thus confirming the further strengthening of
banking sector stability.
Ladies and gentlemen, dear colleagues,
Since we last met at the presentation of the November Inflation Report, the NBS Executive Board has
kept the key policy rate at 3.0%, its lowest level in the inflation targeting regime yet. In making
such decision, the Executive Board has been guided by the assessment that inflation would continue
to move within the target band over the projection horizon, thanks to, among other things, the
effects of past monetary policy easing. Caution is warranted by uncertainties in the international
environment, notably movements in primary commodity prices, pace of monetary policy
normalisation by leading central banks, and possible further rise in protectionism in international
trade.
Having in mind that the key risks in the conduct of monetary policy stem from the international
environment, the NBS will continue to carefully monitor and analyse trends in the international
financial and commodity markets, and to assess their impact on economic developments in Serbia.
In the coming period too monetary policy will be predictable and consistent in delivering low and
stable inflation in the medium term, which, along with preserved financial stability, will contribute
to sustainable economic growth and stronger resilience to external uncertainties.
I would like to use this opportunity to underscore that it was the strong economic growth and the
results of the National Bank of Serbia in terms of maintaining price and financial stability that were
cited as the reasons behind Standard & Poor's decision to upgrade Serbia's outlook from stable to
positive in late 2018.
At the end of my address, I would like to say that low and predictable inflation and a stable financial
system, the achieved economic growth rates, balanced public finances and the established
downward trajectory of public and external debt testify to our commitment and readiness to
respond timely and adequately to volatile external conditions. Allow me to conclude that this is an
environment conducive to further growth in investment and competitiveness, and hence, further
rise in living standards on sustainable grounds.
Having said this, I give the floor to my colleagues from the Economic Research and Statistics
Department to give you a more detailed analysis of current developments and to present our new
macroeconomic projections.