Macroeconomic Data

Inflationary pressures decelerated by 0.7pp to 1.4% yoy in September

FX & FI

The EUR/HRK exchange rate continued trading around 7,42 mark through the course of last week

Croatian EUR yields increased slightly while spread versus benchmark widened somewhat 

According to the preliminary release, Croatian GDP growth accelerated in the first quarter of the year and reached 3.9% yoy – the strongest growth rate since 4Q16. and significantly above 2.6% GDP expansion in 2018. In comparison to the previous quarter GDP increased by 1.8%. 

Macroeconomic Indicators

Inflationary pressures decelerated at the beginning of 2019

Personal consumption strong performance continued

Industrial production and export growth recovered in the first quarter

FX & Money Market

Croatian EUR and USD yields largely unchanged in April

EUR/HRK Moved Lower in April

Short end kuna rates staying at record lows

Croatian economy is gaining momentum following the lockdown that started in mid-March and lasted until the beginning of May. Government imposed restriction were successful as total number of infected people stayed below 2500 during the first wave of the pandemic. However, following a couple of weeks of no or very little new cases, the second wave of the pandemic seems to be around the corner.



Croatian economy is expected to be significantly affected by the pandemic, given the importance of tourism and Italy as the largest trading partner. In addition, as long as COVID-19 remains present, the necessity of lockdown renewal can not be excluded. Given the burden of uncertainty the economy is facing, we have analyzed three possible economic scenarios for 2020 and 2021. 

FX

The euro came under pressure last week on the back of ongoing political turbulences in Italy

FI

Slovenian bonds showed strong resilience to the Italian bonds sell-off and thus outperformed wider periphery issues such as Portugal and Spain

Slovenian GDP growth decelerated modestly from an average 4.9% yoy

growth in the 1H17 to 4.5% in the 3Q17.

Slovenian economy is set to expand at 4.0% yoy-alike pace in the 4Q17 for an

average 4.6% growth in the 2017. 

Macroeconomic Indicators

Inflation accelerated further by 0.4pp to 1.6% yoy in March

Personal consumption strong performance continued

Export growth remains strong but euro zone slowdown poses downside risks

FX and Fixed income

Euro depreciated further versus US dollar

Slovenian yields narrowed by 25bp versus benchmark through  the course of first quarter 

Average growth of 4.5% yoy in the year to September is in line with our 2018 overall growth estimate. Recently released hard indicators for October suggest that strong performance of Slovenian economy continued in the final quarter of the year. Following personal consumption stagnation in third quarter, we believe that strong labor market and solid net wage growth will boost spending in pre-holiday period and provide support for growth performance. 

Slovenian growth is set to slow down to 3.4% in 2019 and 3.0% in 2020 according to our estimate. Expected export growth deceleration is the main reason for overall growth slowdown as external environment will become less favorable and price competitiveness of Slovenian exporters will worsen due to ongoing increase in unit labor costs. Investment growth will be pressured by weaker sentiment indicators and fears of euro zone and global growth slowdown. However, high capacity utilization rates and stronger use of EU funds argue in favor of still solid investment growth but somewhat below current levels.

High saving rates, ongoing employment and wage growth and interest rates around record lows all argue in favor of stronger personal consumption growth. However, personal consumption performance has been sluggish for some time and in odds with labor market performance. While there is room for growth, we remain careful when estimating the magnitude as further economic sentiment deterioration might postpone expected personal consumption re-acceleration.

Main downside risks to our outlook arise from stronger than expected deterioration of external environment that would have negative impact on both exports and business investment activity. 

Global Competitiveness Report 2018

Serbia managed to improve its competitive position for the third year in a row and is currently taking 65th place among 140 countries

FX&FI

The EUR/RSD exchange rate faced moderate upward pressures through the course of last week and is currently trading around 118,50 mark     

Yields on Serbian USD bonds recorded moderate upward pressures last week while spread versus benchmark remained largely unchanged

According to the preliminary release, Serbian real GDP increased by 3.5% yoy which is in line with our growth expectations. 



Lower growth in fourth quarter is not surprising given the diminishing impact of low base effect. In the absence of detail data we can only say that we expect strong personal consumption performance driven by employment growth, wage hikes, strong lending activity and remittances inflow. Investment activity remained strong and supported with the ongoing public and private investment cycle. 

NBS meeting

NBS kept the key rate unchanged at 3.0% in March

Macroeconomic Indicators

Inflationary pressures inched slightly higher in January and February

Personal consumption strong performance continued

FX

Appreciation pressures on dinar continued 

We are upgrading our 2019 growth expectations by 0.2pp to 3.7% as we expect that strong investment and personal consumption growth will be able to offset worsening external environment and 2018 high base. We see above 3.0% personal consumption increase maintained amid rising employment, continued wage and pension growth and low interest rate environment.

Serbia managed to improve its competitive position for the third year in a row and is currently taking 65th place among 140 countries (70th place in 2017) according to the Global Competitiveness Report 2018 of the World Economic Forum. Serbia made progress in lowering cost of starting a business and time to start a business, as well as in terms of SMEs financing and venture capital availability. Such performance supports our view that strong FDI inflow in Serbia will continue in the coming period.