Research Detail
| 2022/03/10 / Erste Group Research |
Uncertainty is high as risk-off mode becomes driving force Uncertainty seems to be the name of the game in recent times. Just as the effects of the worst pandemic in a century slowly fade away, geopolitical tension in Eastern Europe escalated in the most dramatic way – bringing a fresh bout of economic risks. Unfortunately, the overall outlook gets gloomier, as what earlier could be classified as geopolitical tensions escalated in the most dramatic way possible. We opted for a 0.5pp cut to this year’s GDP forecast, bringing the figure to 4% y/y, as we expect weaker external and domestic demand. Due to the significant role Russia plays as global commodity producer, the impact on overall inflation is straightforward, just looking at the recent surge in oil and natural gas prices on global markets. Hence, we have once again revised our FY22 CPI forecast, now seeing the average figure at 7.2% y/y. The NBS has so far stayed away from changes to the key rate, leaving it unchanged at 1%. Nevertheless, its policy mix has been tightened through hikes of the reverse repo rate. Looking ahead, a trade-off seems inevitable, given the alarmingly high inflation on one hand and deteriorating growth outlook on the other. With almost no space left for further repo rate hikes, we expect the central bank will begin to hike its key rate from April. Tough times arrived for fixed income investors. The escalation of the geopolitical situation fueled further spikes in already alarmingly high inflation levels, hence the risk-on mode on full display. Serbian Eurobonds were shattered. The dinar curve fared a bit better, although low liquidity and the continuously falling share of foreign investors also paint a rather depressing environment. The dinar exchange rate against the euro remains basically unchanged around 117.6, owing to the likely heavy interventions from the NBS, especially as the sell-off in dinar bonds intensified, which led to stronger demand for the EUR on the FX market. While we do not have official data yet on the size of the interventions, we assume that the NBS has already sold north of EUR 600mn in order to keep the EUR/RSD anchored. The campaign for snap parliamentary, local and presidential elections has started in Serbia. The ruling coalition still enjoys vast support, while opposition parties will try to enter parliament by running in three different blocs. The escalation of the situation in Eastern Europe casts a big shadow on election themes and might become the centerpiece of the campaign. |
 Download PDF (99kB)
|
General information
| Author | Erste Group Research |
| Date | 2022/03/10 |
| Language |  |
| Product name | CEE Country Macro Outlook |
| Topic in focus | FX, Macro/ Fixed income |
| Economy in focus | Serbia |
| Currency in focus | Serbian dinar |
| Sector in focus | - |
| Download |