NBS downgrades growth forecast to minus 0.5 percent

NBS downgrades growth forecast to minus 0.5 percent

Output was hit by floods in the second quarter of 2014 - in particular in mining, energy and agriculture, with the damage causing the GDP to drop to minus 1.1 percent in the second quarter, Hinić told Wednesday's press conference on the August 2014 inflation report.

The decline of the GDP to minus 0.5 percent in 2014 is a result of lower agricultural output and shrinking activities in the mining and energy sector, while the construction industry should make a positive contribution through the reconstruction of destroyed or damaged buildings, he said.

Hinić also believes that reduced household and government spending will have a negative impact on the GDP in 2014 and 2015 due to the looming fiscal consolidation measures.

As a result of these measures, the GDP growth will be lower in 2014 and 2015, and the Serbian economy is expected to hit recession this year and stagnate in 2015 due to negative short-term effects of the fiscal consolidation, he said.

Serbia's GDP is expected to grow in 2016, Hinić said, adding that he expects that subsidized loans to the economy will have a positive impact on growth in 2014 and 2015.

Foreign direct investments in Serbia totaled around EUR 700 million in the first seven months of this year, and are expected to reach EUR 1.2 billion by the end of the year, Hinić said.

A further recovery of the euro zone should contribute to a growth of Serbia's net exports, while the country's post-flood recovery and progress in European integrations should boost investments, he said.

The current account deficit will amount to 5.9 percent of the GDP in 2014, Hinić said.

Speaking about inflation, Hinić said that it is below the threshold of the target rate, mostly due to a decline of non-processed food prices.

Unless a 15-percent increase of the electricity price is introduced in the fourth quarter, the growth of the inflation rate could be 0.8 percent lower than expected by the end of the year, he said.

According to the NBS central forecast, the inflation rate will return to four percent plus minus 1.5 percent in the third quarter, and will remain in that range by the end of the year, Hinić said.

The fiscal consolidation measures and structural reforms should start as soon as possible to boost the ability of the Serbian economy to resist external impacts, he said.