1. 1 % relative to the previous quarter. on the production side, we estimate that y - o - y growth in gdp was driven by the rising activity in trade, industry and construction, with other services sectors also yielding a positive contribution. in terms of use, growth was driven by domestic demand, where private consumption and fixed investments gave the largest contributions. 5 of 10 faster than expected gdp growth in q1 boosted the likelihood that this year ’ s economic growth rate will be closer to the central value of the 3 – 4 % forecast range from the previous report, therefore we now estimate gdp growth at the rate of 3. 5 %. other relevant international institutions share similar expectations of economic growth for this year, including the international monetary fund, world bank and consensus economics, and they estimate growth to be among the highest in the central and southeast european region. we expect an additional pick - up in economic activity, to the range of 4 – 5 % over the next two years, which will be facilitated by the realisation of investments planned as part of the “ leap into the future – serbia expo 2027 ” programme, alleviated global inflationary pressures and more favourable financing conditions. growth will be driven by domestic demand, with a positive contribution of all components. private consumption will increase owing to the continued growth in employment and wages, notably in the private sector, but without major inflationary effects given that wage growth will be largely a result of increased productivity. chart 11 gdp growth projection chart 12 contributions to real gdp growth ( y - o - y rates, in % ) ( in pp ) change in inventories net exports government consumption gross fixed capital formation household consumption gdp ( in % ) - 2 - 2 i ii source : nbs. iii iv i ii iii iv i ii iii iv i ii iii iv i - 4 2017 2018 2019 2020 2021 2022 2023 2024 * 2025 * 2026 * sources : sors and nbs calculation. * nbs estimate. considering that in the past months we heard comments that inflation has eaten up citizens ’ living standard, i would like to stress that wage and pension growth and decelerating inflation have pushed y - o - y real wage growth in january and february to 9. 2 %, and pension growth to 14. 2 %. that the living standard is improving is attested to by the increase in the coverage of the average consumer basket by the average wage and increase in the coverage of the minimum basket with the minimum wage to around

nbs will continue to keep a close eye on all key factors affecting inflation movements and react additionally, if needed. our future decisions will depend on the anticipated movements of key inflation factors, i. e. on incoming data, taking into account the time needed for the full effects of past monetary tightening to play out. according to the preliminary estimates of the serbian statistical office, y - o - y gdp growth in q2 picked up to 1. 7 %. in our estimate, on the production side, growth was driven by the recovery in construction, as well as stepped - up activity in the services sectors, agriculture and industry. on the expenditure side, just as in q1, growth was driven by net exports owing to real growth of goods and services export and a decline in import, as well as fixed investments, while consumption and inventories gave a negative contribution. the same movements were recorded by our regional peers as well. with production costs subsiding and investment and consumer confidence being restored, we expect economic activity growth in the international environment to accelerate. these factors will also speed up the pace of serbia ’ s economic growth relative to the first two quarters. at the year level, we still expect gdp rate growth in the 2. 0 % – 3. 0 % range, though we now estimate that the growth rate will be closer to the lower bound of the projected band. weaker performance in the production sectors of our key trade partners, notably germany, is mirrored by our somewhat lower perception of the additional acceleration in manufacturing and net export growth in the remainder of the year. nonetheless, we estimate that this year net 5 of 10 exports will contribute to economic growth more than we anticipated in may, primarily due to the results achieved in the year to date. a positive contribution is also expected from fixed investments, thanks to increased profitability of the economy and a high inflow on account of fdi, as well as government investments in road infrastructure. household consumption will continue to increase, propped by higher employment and wages, though to a lesser extent than what we expected in may. chart 7 gdp growth projection chart 8 contributions to real gdp growth, expenditure side ( y - o - y rates, in % ) ( in pp ) - 2 - 4 - 6 - 2 ii iii change in inventories net exports government consumption gross fixed capital formation household consumption gdp ( in % ) - 8 iv i ii iii iv i ii iii source : nbs. iv i ii iii iv i ii 2023 *