Serbia’s GDP grew 2.1% y/y in January-March after contracting in four straight quarters, on the back of rising exports, agricultural and manufacturing output, the statistics office said in a statement on June 28. The office revised up its Q1 GDP growth reading from 1.9% y/y in the flash estimate released at end-April. Domestic demand, however, remained weak, weighing on Serbia’s GDP outlook.

In seasonally adjusted terms, the Q1 GDP rose 1.9% q/q compared with a 0.0% growth in Q4 2012.

Exports (up 13.5% y/y) were the key driver of Serbia’s GDP growth in January-March, offsetting falling household (down 1.1% y/y) and government consumption (down 3.2%) and shrinking investments (down 3.9%).

Serbia’s export recovery was mainly due to the automotive and petroleum industries. According to latest data from the finance ministry, the Kragujevac-based Fiat plant and Serb oil firm NIS, controlled by Russia’s Gazprom Neft, were the main exporters in January-May with a total of EUR 609mn worth of sales.

Sector-wise, the agriculture sector recorded the strongest y/y increase in Q1, rising 16.7% after declining throughout 2012 due to severe drought (low-prior year base played a role). The manufacturing sector, which contributes 16% to the country’s gross value added, grew 2.4% y/y in Q1, slowing from a 4.9% increase in Q4 2012. The utilities sector output also swung to a 3.2% y/y growth over the period partly reflecting improved weather conditions.

Serbia's GDP remained in the red throughout 2012, contracting 1.7% compared with a 1.6% real growth a year earlier due to falling household consumption and investments. The government forecasts a 2.0% GDP growth in 2013 on higher car and petrol exports. Total exports are projected to climb by at least 25% y/y to EUR 11bn in 2013.

We expect domestic demand to remain weak throughout 2013, reflecting falling real wages and budget austerity measures. The Serbian government recently approved additional spending cuts worth RSD 36bn (EUR 316mn) in an attempt to curb its rising budget gap to 4.7% of GDP.