NBS revises inflation up, growth down amid global risks

The global economy faces exceptionally heightened uncertainty, with the latest Middle East conflict escalating energy shocks and altering economic outlooks.

International institutions, including the IMF and ECB, have revised up inflation projections and revised down economic growth forecasts.

The IMF now expects global inflation at 4.4 percent this year, potentially rising above 5 percent in a prolonged shock scenario.

For the euro area, the ECB revised its baseline inflation forecast to 2.6 percent for this year, up from around 2.0 percent in December, which is expected to slow economic growth to 0.9 percent.

These revisions reflect higher energy prices and declining real incomes, prompting the development of alternative scenarios to capture a broader range of possible outcomes amid pronounced and asymmetric risks.

Serbia's central bank (NBS) maintains a cautious monetary policy, successfully preserving macroeconomic stability despite global challenges.

First-quarter inflation was lower than expected, moving below the 3 percent target midpoint, but accelerated to 3.3 percent in April due to global oil price increases.

Core inflation has hovered slightly above 4 percent, driven by services prices, with limited second-round effects so far.

The government's measures, including reduced fuel excise duties and export bans, have mitigated domestic petroleum product price increases.

The NBS's new central projection anticipates inflation temporarily rising slightly above the target band towards year-end and early next year, primarily due to global commodity prices and a low base effect from last September's margin capping decree.

Thereafter, inflation is projected to decelerate and return within the target band, supported by a restrictive monetary policy stance, easing international cost-push pressures, and aligning real wage growth with productivity gains.

GDP growth for this year was revised from 3.5 percent to 3.0 percent, and for 2027 from 5.0 percent to 4.5 percent, reflecting geopolitical tensions and prolonged global uncertainty affecting investment confidence.

Despite these revisions, the economy is expected to grow steadily around its potential of 3.5 percent annually in the medium term, led by domestic demand and supported by infrastructure projects like Expo 2027.

Foreign direct investment (FDI) inflow in Q1 amounted to EUR 369.3 million, lower than expected due to heightened geopolitical tensions.

However, Serbia successfully issued approximately EUR 3 billion in eurobonds in late April, including a 12-year green bond for sustainable development projects, ensuring financing and enabling early repayment of 2027 maturities.