Jorgovanka Tabaković: Overview of recent monetary and
macroeconomic trends in Serbia
Introductory speech by Dr Jorgovanka Tabaković, Governor of the National Bank of Serbia,
at the presentation of the Inflation Report - May 2016, Belgrade, 24 May 2016.
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Ladies and gentlemen,
Welcome to the presentation of the May Inflation Report. As always, we will give you an
overview of recent monetary and macroeconomic trends and our expectations for the period
ahead.
Let me start and conclude my speech by discussing the same topical news! We have revised
our GDP growth projection for 2016 from 1.8% upwards. We now expect that the Serbian
economy will end this year with a growth between 2.3% and 2.5%. Allow me to underline
that, given the current movements, it is far more likely that the year-end GDP growth rate will
be at the upper bound of the projection range, i.e. at 2.5%. And it is not that we are being
overly optimistic; this projection is based on models, mathematics and indicators.
If we compare the latest macroeconomic data with those presented in the February Report, it
is evident that the economic recovery of the Republic of Serbia has continued, and more
importantly, that the growth is based on long-term sustainable foundations. And that is why
the macroeconomic outlook for the period ahead has been revised upwards relative to the
previous Report.
In the first three months of the year, fiscal deficit contracted by a quarter from the same
period last year and equalled 1.7% of the estimated GDP, as compared to 2.4% in the same
period a year earlier.
The current account deficit of the balance of payments has more than halved compared to
the corresponding period in 2015 - it equals 3.3% of the estimated GDP and remains fully
covered by foreign direct investments.
Our fiscal outlook has improved in response to a sustainable rise in tax revenue, while the
narrowing of the current account deficit has been driven by more favourable trends in
external trade.
Last time we met at the presentation of the February Report, we expressed no doubts as to
the continuation of growth in exports and economic activity in the coming years. Indeed, the
growth has continued up, and has done so at an even faster pace than expected. Export
growth, measured in euro terms, was exceptionally strong - it came at 13.4% yеаr-on-year in
the first quarter, and is without any doubt attributable to both high growth and favourable
structure of foreign direct investment. Consumption is recovering faster than anticipated.
Owing to the favourable results achieved in the first quarter, we have revised our growth
projection for this year from 1.8% to 2.3-2.5%. Let me say it again, considering the current
movements, GDP growth in 2016 will most likely be at the upper bound of the projection
range. As so far, we expect that growth will be increasingly driven by investment into
exportoriented sectors, as this guarantees its sustainability.
The National Bank of Serbia has continued safeguarding macroeconomic stability and
strengthening macroeconomic fundamentals. We are all witnessing the upheavals originating
in the international environment, different risks spreading from across markets and
continents. In such circumstances, we have succeeded in maintaining the stability of prices,
relative stability of the exchange rate and financial system stability. Since supporting the
economic policy of the Government of the Republic of Serbia is one of the statutory
objectives of the National Bank of Serbia, we find it exceptionally important that expansionary
monetary policy and macroeconomic stability have also led to a reduction in the cost of
financing for both the government and the private sector, whereby a significant contribution
has been made to the creation of a better business and investment environment.
Inflation in Serbia has remained relatively low and equalled 0.4% year-on-year in April. As
expected, disinflationary pressures prevailed on account of domestic factors, though they
were unexpectedly strong from price movements in the international environment. The lower
inflation projection of our main foreign trade partners, notably of the euro area, and the
continuing decline in the prices of primary agricultural commodities in the global market at
the turn of the year have led us to lower our February inflation projection for this year.
According to our most recent projection, year-on-year inflation should start rising gradually as
of May and return within the target tolerance band early next year, stabilising thereafter at
slightly above 3%.
In an environment of low inflationary pressures and aiming to bring inflation back within the
target tolerance band in a sustainable manner, which is over the medium term, and not in the
short run or at any cost, we have continuously eased our monetary policy stance over the
past three years. Monetary policy easing was particularly intensive last year, when the key
policy rate was cut by 350 basis points, which among others was facilitated by consistent
implementation of fiscal consolidation and structural reforms. Even though inflationary
pressures are low and macroeconomic fundamentals continue to improve, we have decided
to keep the key policy rate unchanged at 4.25% for the time being because of persistent
uncertainties in the international commodity and financial markets. On the other hand,
movements in the domestic market - most notably the continuing and significant narrowing
of internal and external imbalances, are cushioning the effects of external risks. What is
certain in this time of uncertainties seeping in from the international environment is that the
National Bank of Serbia shall, as so far, rise to all the challenges and that Serbia will record
higher and sustainable economic growth rates led by export-oriented investment.
The improved macroeconomic indicators and a brighter outlook for the period ahead have
also been recognised and acknowledged by the European Commission, which revised up the
economic growth projection for Serbia, and by rating agencies, which raised Serbia's credit
rating outlook. I now give the floor to Ana Ivković who will present to you in more detail our
view of Serbia's macroeconomic prospects in the period ahead.
Thank you for your attention.