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2020/11/27 / Erste Group Research

Pandemic worries mounting

Recovery in the 3Q, as suggested by high-frequency indicators, was confirmed with the release of the flash GDP. The flash estimate landed at -1.3% y/y, suggesting roughly 7.7% q/q growth (seas.adjusted). Supportive monetary policy created abundant liquidity, compressing yields and allowing for robust credit growth (10.4% YTD in October). Together with hefty government fiscal package (~12% of GDP) authorities managed to limit the fallout in the private sector. Jobs were preserved, wage growth, although slowed a tad, largely continued.

Meanwhile, after rather calm summer months, epidemiological situation worsened rapidly in late October, suggesting downside risks for the end of the year and the beginning of next year. We decided to leave our forecast unchanged at -1% y/y and 5% y/y for 2020 and 2021 respectively, but stress elevated uncertainty related to the duration of the pandemic and possible government counter measures in the near term which could undermine figures.

Inflation remains stable, averaging 1.6% y/y after 10M20. Cost-push pressures are weak, reflecting low global oil prices, while demand-side pressures are constrained by reluctance for big-ticket purchases due to overall uncertainty. Strong fiscal package brings a significant one-off deterioration in public debt ratios this year, as the budget gap is expected at 8.8% of GDP but should start to reverse already in 2021.

As far as markets are concerned, the EUR/RSD remained stable throughout the year at 117.6, with the need for interventions from the NBS gradually waning in 2H20. Debt markets stabilized after the initial panic mode, finding relief in preserved credit rating, hence still within grasp of IG. While the yield on the 10Y benchmark bond at 1.4% remains 40bps above record-low levels seen in February, it has predominantly been a one-way street since the peak seen at the end of April.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusSerbia
Currency in focusSerbian dinar
Sector in focus-


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