Serbia’s current account gap shrank 79.9% y/y to EUR 34.2mn in January 2014, mainly thanks to a falling trade deficit, data from the central bank (NBS) showed on April 22.

Exports rose 8.5% y/y to EUR 984.6mn underpinned by higher motor vehicle and oil products sales abroad. Imports, on the other hand, fell 2.7% y/y to EUR 1.2bn reflecting weak domestic demand. Therefore, the January foreign trade deficit narrowed by 32.1% y/y to EUR 233.8mn.

The current transfers’ surplus grew 13.6% y/y to EUR 207.6mn, as private remittances increased 7.8% y/y to EUR 134.9mn, likewise, helping narrow the overall current account gap.

The financial account surplus narrowed to just EUR 3.1mn in January from EUR 120.4mn a year ago mainly due to falling FDI and portfolio investments. The reading likely reflected political uncertainty prior to the March 16 snap parliamentary elections.

Net FDI totalled EUR 25.6mn in January, down from EUR 80.1mn a year ago. Nonetheless, they covered around 75% of the current account gap, up from just 47% a year earlier. The January net portfolio investments fell 18.8% y/y to EUR 88.8mn. The bulk of the inflow came from the sale of government securities.

Serbia’s current account gap shrank 50.1% y/y to EUR 1.59bn in 2013, reversing a 9.9% expansion the year before, on narrowing foreign trade deficit and stronger remittances inflow. The 2013 current account gap equalled to 4.9% of the full-year projected GDP, down from 10.7% a year ago, according to IntelliNews calculations.

Serbia's central bank expects the current account deficit to remain broadly unchanged in 2014. Exports are seen rising at a slower pace than in 2013 whereas low domestic demand will prevent a faster rise in imports. FDIs are expected to increase to EUR 1bn (2.9% of GDP) mainly in the energy, trade and manufacturing sectors.