FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
BELGRADE STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The ruling pro-EU parties are likely to tighten
their control of Serbia’s political scene
following a recent split in the nationalist
Serbian Radical Party (SRS), which for several
years had been the largest single party in
parliament. The split in the SRS leaves the
opposition deeply divided, and will weaken
the nationalist challenge to the government.
The new government’s foreign policy priority is
EU integration. The recent decision by EU
foreign ministers not to activate the trade-
related parts of Serbia’s stabilization and
association agreement (SAA), following the
Serbian authorities’ arrest in July of Radovan
Karadzic, a former Bosnian Serb leader, was
a heavy blow. It remains unclear whether the
Dutch and Belgian governments, which
opposed unfreezing the SAA, will soften their
stance. In any case, it is unlikely that the EU
would grant Serbia candidate status as long
as Ratko Mladic, the former military
commander of the Bosnian Serbs and the top
indictee of the ICTY, remains at large.
The new government has familiar faces in a
number of important economic posts. Mr
Cvetkovic is seen as a capable technocrat,
having served as the finance minister in the
previous government, and before that as the
head of the privatization agency. Mladjan
Dinkic of the G17 Plus, who has previously
served as finance minister and as governor of
the National Bank of Serbia (NBS, the central
bank), is now deputy prime minister for the
economy and regional development.
Economic Performance
With several US and European financial
institutions either collapsing or facing severe
difficulties in recent weeks, the seriousness of
the present global financial crisis has been
underlined. Credit conditions will be tightened
further in the US and Western Europe, as well
as in many emerging markets, including
Serbia, that are heavily dependent on foreign
capital.
Real GDP grew by 6.2% year on year in the
second quarter of 2008, compared with an
(upwardly revised) year-on-year growth rate of
8.4% in the first quarter. This means that the
economy expanded by an estimated 7.3% in
the first half of the year. We anticipate a
further slowdown in the second half, in view of
the increasingly unfavorable external
environment, and continue to estimate full-
year growth of 6.5%.
There are signs that headline inflationary
pressures may have peaked, with retail price
inflation decelerating again in August, to
10.5% year on year. This reflected falling
global oil prices and a good harvest in Serbia.
Average inflation of 10.9% is forecasted in
2008. Disinflation is expected to continue over
the forecast period, with average inflation
falling to about 5% by 2010. Disinflation will be
underpinned by strong base-period effects
and generally prudent economic policies.
Key Information Contacts
National Bank of Serbia: www.nbs.rs
Securities and Exchange Commission: www.sec.gov.rs
Central Securities Depository and Clearing House: www.crhov.rs
Ministry of Economy and Regional Development: www.merr.sr.gov.yu
PAGE 50
The dinar has strengthened in recent months,
as political risk became less prominent in
investors’ perceptions, and the Serbian
currency is currently trading at a rate that it
last reached in 2004. The dinar will continue
to be supported in 2009-10 by relatively high
interest rates and by large foreign-exchange
reserves. The currency also received a boost
from the formation of a pro-EU coalition
government, although it will remain vulnerable
to negative sentiment towards emerging
markets. The dinar’s real effective exchange
rate is forecast to rise again in 2009,
heightening concerns about external
competitiveness. Nevertheless, the dinar is
forecast to fall in real effective terms in 2010,
owing to a recovery in the US dollar and
continued disinflation in Serbia.
The current-account deficit stood at US$ 5.6
billion in the first seven months of 2008, an
increase of 68% compared with the year-
earlier period, as rapid wage and credit
growth continued to fuel an import-oriented
consumption boom. We estimate a full-year
external deficit equivalent to more than 17% of
GDP in 2008, as domestic demand remains
strong for the rest of the year.*
* The Economic Intelligence Unit Ltd., October 2008.