Three possible scenarios for inflation in Serbia

In its May Inflation Report, the National Bank of Serbia gave an analysis of the basic, more favourable and less favourable scenarios when it comes to gross domestic product (GDP) and inflation, in which they offered different scenarios in relation to global inflationary trends and financial conditions, in the light of China’s economic recovery after abandoning its zero-tolerance strategy for the coronavirus. As an additional risk, the analysis includes the possible development of the geopolitical situation, i.e. fluctuations in energy and basic product prices.

Depending on which scenario could play out, inflation projections in Serbia range from 12.2 percent to 13.1 percent, and GDP growth from two to three percent.

Basic scenario – inflation of 12.7 percent, GDP growth of 2.5 percent

The NBS Vice Governor Željko Jović has assessed that the fact that year-on-year inflation in April stood at 15.1 percent confirmed that the peak of price increase is behind us and that previously implemented monetary measures are yielding results.

It is also expected that inflation will continue to decline in the coming months and that in June it could move around 14 percent, and the base around 11 percent, in order to return to the limits of 1.5 to 4.5 percent in mid-2024.

The basic scenario implies that inflation at the end of the year will stand at 12.7 percent with a GDP growth of 2.5 percent.

A less favourable scenario – inflation of 13.1 percent, economic growth of two percent

“In the less favourable scenario, we assumed that inflation in the eurozone, and above all core inflation, will be more persistent than expected due to the continuation of the transfer of high global cost pressures from the previous period, the fact that the prices of products and services do not only reflect the growth of production costs but also the growth of profit margins. We assumed that a faster economic recovery of China is happening in parallel with that, which results in higher global prices. In this scenario, we also assumed an additional escalation of geopolitical tensions and, on that basis, higher prices of energy and primary agricultural products”, the NBS states in the analysis of the less favourable scenario.

Taking into account all the above mentioned, we estimate that, in that case, the average inflation would be higher by 0.4 percentage points this year than in the base scenario, and higher by 0.9 percentage points in 2024″, reads the NBS analysis of the less favourable scenario.

A more favourable scenario – inflation of 12.2 percent, GDP growth of three percent

In a more favourable scenario, NBS analysts assumed that, due to a significant reduction in global cost pressures in the previous months, the inflationary expectations of market subjects in the eurozone will decrease faster than expected, which would then make monetary conditions, realistically, more restrictive.

Such a scenario would mean that domestic inflation would be lower this year by 0.5 percentage points than in the base scenario, and by 0.9 percentage points in 2024, and would return to the target range in the first quarter of next year.

(, 23.05.2023)

This post is also available in: Italiano

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