Serbia February 2011

Country Report
Serbia
February 2011
Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom
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Serbia
Serbia
Executive summary
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Highlights
Outlook for 2011-15

4 7 8
Political outlook Economic policy outlook Economic forecast
Monthly review: February 2011

11 13 15
The political scene Economic policy Economic performance
Data and charts

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Annual data and forecast Quarterly data Monthly data Annual trends charts Monthly trends charts Comparative economic indicators
Country snapshot
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Basic data Political structure
Editors: Editorial closing date: All queries: Next report:
Joan Hoey (editor); Gabriel Partos (consulting editor) January 28th 2011 Tel: (44.20) 7576 8000 E-mail: london@eiu.com To request the latest schedule, e-mail schedule@eiu.com
Country Report February 2011
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The Economist Intelligence Unit Limited 2011
Serbia
Railway
HUNGARY
Subotica Subotica
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Capital Major town

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MONTENEGRO
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Leskovac
KOSOVO
Pristina Vranje
BULGARIA
Dakovica Dakovica Presevo Presevo Prizren
ALBANIA
ADRIATIC SEA
MACEDONIA
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Executive summary
Highlights
February 2011
Outlook for 2011-15 The governing coalition, led by the Democratic Party (DS), is expected to become increasingly unpopular, but may be able to survive until the next scheduled poll, in 2012. Public dissatisfaction with government austerity policies is expected to grow. The coalition's foreign policy failures will have eroded its credibility and authority, reducing the DS's standing ahead of the election. Another coalition government is likely to be formed after the next election, possibly between the opposition Serbian Progressive Party (SNS) and the ruling DS. It is likely to pursue pro-Western policies. Even if it is invited to be a candidate in 2011, Serbia's EU membership prospects are in question, as anti-enlargement sentiment in Europe has intensified and the Kosovo issue remains an impediment. The Economist Intelligence Unit forecasts a modest real appreciation of the dinar in 2011-15, following a further sharp real depreciation in 2010. We forecast that real GDP growth will average 4.5% in 2011-15, following estimated growth of 1.6% in 2010. We forecast that consumer price inflation will decline gradually over the forecast period, from an average of 6.3% in 2010 to 3.3% in 2015. Monthly review There has been renewed speculation about a possible grand coalition between the DS, the largest party in the governing coalition, and its most powerful opposition rival, the SNS. Boris Tadic was re-elected unopposed as DS leader on December 18th 2010. A rival party boss, Dragan Djilas, the mayor of Belgrade, consolidated his power base by winning one of the five deputy leadership positions. A Gallup survey of expectations for 2011 revealed residents of Serbia as the most pessimistic of all nations polled. The 2010 central government budget deficit was RSD100.3bn (US$1.3bn), 20% below the IMF target, owing to a slight overshooting of projected revenue (of 0.4%) and slightly lower spending (by 1.6%). Parliament has approved the 2011 draft budget law and other "prior actions" demanded by the IMF, allowing completion of the sixth review of the standby arrangement and the release of a loan tranche. Real GDP growth accelerated to 2.7% year on year in the third quarter, from 2% in the second quarter and 0.3% in the first quarter, although a slowdown in industry does not augur well for fourth-quarter growth.
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Serbia
Outlook for 2011-15

Political outlook
Political stability The government led by For a European Serbia (ZES)an alliance dominated by the Democratic Party (DS) of the president, Boris Tadicis more than halfway through its four-year mandate. The government has been adept at consolidating power. It has co-opted, divided, neutralised or marginalised most of the opposition. It has also established almost complete control of the main media outlets. Despite deep popular dissatisfaction with living standards and with the political systemexpressed most recently in Gallup's Global Barometer of Hope and Despairit has largely kept the social peace and preserved political stability. However, the government has little else to show for its two and a half years in office. As elsewhere, the government has had to cope with the worst global slump since the Depression of the 1930s. The recession in Serbia in 2009 was not as deep as in some other countries in the region, but the recovery has been lacklustre. Short-term prospects look modest at best, the currency has been under pressure and the fiscal situation may not be sustainable. There is widespread public dissatisfaction over low wages and pensions, which were frozen in 2009-10 and which from 2011 are indexed to inflation. IMFmandated fiscal austerity is likely to fuel social and political tensions in the coming months, and could exacerbate existing strains in the ten-party coalition government and in the DS itself. The government has only a small parliamentary majority, and the withdrawal of even one of the coalition members could result in a political crisis and even an early election. In addition, the returns on the government's foreign policy are in doubt, given EU enlargement fatigue and recent setbacks on Kosovo. The government came to power in 2008. Its rule has been sustained on the promise to pursue EU integration and to defend, by political and legal means, Serbia's formal sovereignty over Kosovo, despite Kosovo's unilateral declaration of independence in February 2008, which leading Western states have backed. However, it has become increasingly evident that Serbia's Kosovo policy has foundered and that its EU integration has stalled, notwithstanding the recent decision to forward Serbia's membership application to the European Commission for consideration. The ruling on July 22nd 2010 by the International Court of Justice (ICJ) in The Hague that Kosovo's independence declaration did not contravene international law was an enormous blow to the government. Serbia's subsequent retreat under Western pressure from pursuing a resolution at the UN condemning unilateral secession has further eroded the government's credibility. There is a risk that the government will end up with little to show for its compliance. This could have far-reaching political consequences and eventually bring into question the survival of the government, and even the position of Mr Tadic, the main architect of Serbia's policies on the EU and Kosovo.
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The retreat at the UN has prepared the way for an EU-sponsored dialogue between Serbia and Kosovo, although neither the timetable nor the content of the talks is yet clear. Furthermore, the political fallout from rigged elections in Kosovo and an international investigation into allegations of human-organtrafficking and other serious crimes implicating leading figures in the Kosovo government is likely to delay the start of talks. When they commence, the talks between Serbia and Kosovo under international oversight will ensure that the Kosovo issue will continue to be at the centre of Serbian politics for the foreseeable future. Election watch The next parliamentary election is due in 2012, but the opposition parties are campaigning for an early election. The government's main opponent, the Serbian Progressive Party (SNS), has been contradictory in its pronouncements, one moment attacking the government and the next appearing supportive. There is a possibility that the DS and the SNS could co-operate in government, before or after the next election, but the SNS's strategy remains unclear. The standing of the government's other main criticthe Democratic Party of Serbia (DSS), led by Vojislav Kostunicahas fallen, as has that of the ultra-nationalist Serbian Radical Party (SRS). The SNS is thus the main alternative electoral force, although not yet one that can command a majority of votes. The DSS's hostility to the new, pro-Western orientation of the SNS is unlikely to change, so a DSSNS coalition looks more likely than an SNS-DSS alliance after the next election. Progress towards EU membership has been disappointing, notwithstanding the decision by the EU Council of Ministers on October 25th to forward Serbia's membership application to the European Commission. The Commission will form its avis (opinion) of Serbia's application on the basis of the country's response to a detailed questionnaire delivered to Serbia in November, and that opinion will then be sent to the European Council for adoption. The Commission will also undertake the so-called x-ray scan of EU-sponsored reforms, including checking the extent to which national legislation has been brought into line with the acquis communautaire (the body of EU law). The Commission's decision is expected in mid-2011, although other western Balkan countries have had to wait much longer for a response. Not all EU members support Serbia's candidacy. The Netherlands is the most obdurate, emphasising that further progress depends on full co-operation with the International Criminal Tribunal for former Yugoslavia (ICTY) in The Hague, including the arrest of Ratko Mladic, a former Bosnian Serb general, and Goran Hadzic, a former Croatian Serb leader. The decision of the EU Council of Ministers to submit Serbia's application to the Commission was a procedural one (and hence not subject to a Dutch veto), but from now on any opposition from a member state could easily block Serbian accession. Enlargement fatigue has also reached unprecedented levels, and it could take many years for Serbia to satisfy the criteria for membership, even without political obstacles such as Kosovo's status and the issue of war crimes. EU membership thus appears to be an elusive goal, and the Economist Intelligence Unit does not expect Serbia to join the EU by 2015.
International relations
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Kosovo
The Council of Europe adopts Dick Marty's report
On January 25th the Parliamentary Assembly of the Council of Europe (PACE) adopted a resolution calling for international and local investigations into allegations of crimes implicating leading Kosovo politicians, as detailed in a report by Dick Marty, a respected PACE human rights rapporteur. The investigation is likely to damage further Kosovo's quest for international recognition and its longer-term ambition to join the EU. Following two years of research, on-the-ground investigations, numerous interviews and Western intelligence reports, a draft report by Mr Marty for the Council of Europe was released on December 14th. The PACE Committee on Legal Affairs and Human Rights adopted the report on December 16th. The report said that the Kosovo prime minister, Hashim Thaci, was "the boss" of a mafia-style criminal network that carried out executions, smuggled heroin and trafficked human organs. It quoted Western intelligence analysts describing Mr Thaci as the most dangerous of the leading mafia figures to emerge from the Kosovo Liberation Army (KLA), which was formed in 1996 and went on to lead a violent insurgency, culminating in NATO's bombing of Yugoslavia in 1999 and leading to Serbia losing control over Kosovo. Mr Marty and his investigators found that the main KLA units and their respective zones of operational command "corresponded in an almost perfect mirror image to the structures that controlled the various forms of organised crime in the territories in which the KLA was active". Mr Thaci and his "Drenica group" built a power base in the criminal enterprises that were flourishing in Kosovo and Albania at the time. As well as engaging in drug-running and human-trafficking, members the Drenica group were behind a trade in human organs, involving the execution of selected, mainly Serbian, prisoners, and the removal of their kidneys or other organs for use by an Albanian clinic. PACE investigators discovered that witnesses to these crimes had been murdered or intimidated. The report does not accuse Mr Thaci of being directly involved in the organ-trafficking, but notes that he could scarcely have been unaware of it.
Leaked NATO reports appear to corroborate Mr Marty's claims

Mr Thaci and other Kosovo politicians have condemned the report as baseless and slanderous, suggesting that its findings have been concocted by Serbia in a conspiracy to undermine the fledgling state of Kosovo. PACE has adopted the report almost without any changes. The formal inquiry by PACE was prompted by the revelations of a former chief war crimes prosecutor at the International Criminal Tribunal for former Yugoslavia (ICTY) in The Hague, Carla Del Ponte, who said that she had been prevented from properly investigating alleged war crimes, including organ trading, committed by the KLA. In another blow to Kosovo political leaders, secret NATO reports leaked to The Guardian newspaper on January 24th repeated many of the allegations in Mr Marty's report, noting that Western powers had long regarded Mr Thaci as one of the "biggest fish" in organised crime in Kosovo. The NATO documents, marked "USA KFOR", indicate that the US and other Western governments had extensive knowledge of KLA criminal activities. The UN's Kosovo Force (KFOR) is the NATO-led peacekeeping force responsible for security in Kosovo since the war. The NATO reports also repeat the allegations in the Marty report against Xhavit Haliti, a former head of logistics for the KLA, who is now a close ally of the prime minister and a senior parliamentarian in his ruling Democratic Party of Kosovo (PDK). In the Marty report Mr Haliti is said to have ordered, and in some cases personally overseen, "assassinations, detentions, beatings and interrogations" during and immediately after the Kosovo war.
Banking on the KLA

The reports will embarrass prominent Western politicians who strongly supported the KLA and ignored its activities. Among others, Hillary Clinton, the US secretary of state, and Tony Blair, a former UK prime minister, had cordial relations with Mr Thaci. According to Mr Marty, the international actors chose to ignore to the crimes of the KLA, instead placing a premium on achieving some degree of short-term stability. The revelations may not greatly damage, at least initially, Mr Thaci's reputation among those who voted for his party in the election in Decemberin Kosovo the Marty report is being portrayed as the product of an anti-Albanian conspiracy. However, it is difficult to believe that Mr Thaci's political career can survive the international opprobrium brought by the revelations. Kosovo's already poor image has worsened. The political fallout from the scandal is also likely to delay the start of planned talks between Serbia and Kosovo under the auspices of the EU.
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Economic policy outlook

Policy trends Maintaining an economic policy consensus will be one of the most difficult challenges facing policymakers over the next five years. For instance, there is disagreement about how to meet revenue, spending and budget deficit targets agreed with the IMF under the stand-by arrangement signed in March 2009. If expenditure runs over or revenue underperforms, the government may be forced to take additional steps, such as increasing tax rates, to meet deficit targets. Over the next few years the authorities will have to slash current spendingespecially in the public administration, and in the pension, health and education systemsalthough this will threaten social cohesion. Serbia completed various prior actions necessary to complete the sixth review of the stand-by arrangement, with parliament approving the 2011 budget law and the government returning the Law on Pension and Disability Insurance with the agreed amendments to parliament. This made it possible for the IMF to complete the sixth review under the stand-by arrangement programme, allowing the disbursement of SDR319.6m (US$489m). However, in view of the better than expected external situation, the government decided to draw only 54.5m (US$68m), or about 15% of the available amount. Structural reforms are likely to feature in any future agreement, but we do not expect the government to make much progress in privatisation and enterprise restructuring until later in the forecast period, with the exception of the sale of Telekom Srbija planned for 2011. The authorities extended the deadline for submitting bids for the purchase of 51% of the company to March 21st to allow more companies to buy privatisation documentation. So far, five companies have bought the documents: Deutsche Telekom (Germany), France Telecom (France), Telekom Austria (Austria), Amrica Mvil (Mexico) and Weather Investments (Egypt). Fiscal policy Fiscal consolidation is the main challenge in the medium term. The IMF-agreed fiscal strategy envisages narrowing the fiscal deficit from the targeted 4.8% of GDP in 2010 to 1% by 2015. This is to be accomplished mainly through sharp adjustments on the expenditure side, with total expenditure set to decline from the equivalent of 44% of GDP in 2009 to 38% in 2015. The savings will come from ambitious cuts in current expenditure (of 7 percentage points of GDP in 2009-15), predominantly from the wage bill (2.5 percentage points), pensions (2.1 percentage points), and goods and services (1.3 percentage points). Capital spending and net lending are set for a gradual increase, from the equivalent of 3.8% of GDP in 2009 to 5.2% in 2015. Although we assume that expenditure will exceed IMF targets during the forecast horizon, we expect a contraction in the annual consoldiated budget deficit, from 4.5% in 2010 to 3.1% by 2012 and 1.5% by 2015. The success of the fiscal adjustment plan will depend on progress in several areas of public finance reform. A crucial policy contributing to the adjustment in the short term is the nominal freeze on public-sector wages and pensions agreed with the IMF. Keeping wages and pensions frozen in nominal terms in 2010 will have eroded their real value and helped to reduce their share in GDP. Other elements of the fiscal consolidation package, such as large cuts in publicCountry Report February 2011 www.eiu.com The Economist Intelligence Unit Limited 2011
Serbia
sector employment, will probably not be adhered to in a timely manner. Work on pension reform will be slower than planned, delaying future fiscal benefits in the form of lower transfers from the budget. Monetary policy The National Bank of Serbia (NBS, the central bank) will continue to target annual inflation based on the consumer price index (CPI), with the two-week repo rate as the main policy instrument. Following a sharp rise in the key policy interest rate in late 2008, to 17.75%, to prevent capital flight in the wake of the global financial crisis, the NBS gradually relaxed its policy to stimulate the economy, with the key rate set at 8% in early 2010. However, inflation has since become a central monetary policy concern, with consumer price inflation breaching the upper band of the end-2010 inflation target of 6% (2 percentage points) by a wide margin, and the NBS raised the key rate to 10.5% in November, giving Serbia the highest policy rate in Europe. The central bank raised the key policy interest rate by 100 basis points on December 9th and again by 50 points on January 17th 2011, bringing it to 12%. A tighter monetary policy stance is expected to dampen inflationary expectations and help to bring inflation back within the target range in the medium term (3-6% for end-2011 and 2.5-5% for end-2012). The recent increases in the interest rate may not exhaust the potential for tightening of monetary policy in the short term as rising inflation cuts the real rate to a little above zero. Over the medium term, interest rates are set for a gradual decline, in line with slowing inflation.
Economic forecast
International assumptions
2010 2011 Economic growth (%) US GDP 2.8 2.7 OECD GDP 2.9 2.3 World GDP 3.8 3.0 World trade 12.4 6.4 Inflation indicators (% unless otherwise indicated) US CPI 1.6 1.2 OECD CPI 1.3 1.1 Manufactures (measured in US$) 3.2 0.8 Oil (Brent; US$/b) 79.6 90.0 Non-oil commodities (measured 24.0 13.9 in US$) Financial variables US$ 3-month commercial paper rate (av; %) 0.2 0.3 Exchange rate RSD:US$ (av) 78.58 83.32 Exchange rate US$: (av) 1.33 1.25 2012 2.2 2.1 3.0 6.3 2.0 1.6 0.1 82.3 -6.2 2013 2.4 2.2 3.1 6.7 2.5 1.9 1.8 78.3 -4.9 2014 2.5 2.3 3.1 6.7 2.8 2.1 1.2 75.5 1.1 2015 2.4 2.1 3.1 6.0 2.8 2.3 1.8 76.0 0.0
0.7 83.79 1.20
2.2 83.98 1.18
4.1 84.15 1.16
5.1 81.65 1.17
Economic growth
The recovery from the economic crisis has been lacklustre so far, and we estimate real GDP growth of 1.6% in 2010. Net exports and investment have been the main sources of growth. Total domestic consumption is estimated to have shrunk modestly and made a negative contribution to growth. We expect a rebound to GDP growth of 3% in 2011, and the economy to grow more quickly after that. However, average growth in 2011-15, at a forecast 4.5%, will not replicate that of 2000-08, when it was 6.1%.
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Growth in the euro zone is set to slow slightly, to 1.5% in 2011, from an estimated 1.7% in 2010, with negative consequences for Serbian exports (Serbia generates 55% of its export revenue in the EU). However, growth in Serbia's other markets will be stronger. We do not expect a return to the sort of consumption- and investment-driven expansion that Serbia experienced in recent years. Serbia has to undertake a considerable fiscal retrenchment in order to reduce current expenditure. This will have a dampening effect on the recovery of domestic demand for some years. Investment growth will be adversely affected in the short term by the curtailment of capital inflows and by the likelihood that these will take some time to return to pre-crisis levels. There is little prospect of a strong recovery in foreign direct investment (FDI) and other external flows until 2012. The danger is that the crisis will have a longer-lasting impact on growth prospects, in the context of existing negative factors constraining long-term economic expansion in Serbia, such as continuing institutional problems, a deteriorating demographic outlook and weak innovation performance.
Economic growth
% GDP Private consumption Government consumption Gross fixed investment Exports of goods & services Imports of goods & services Domestic demand Agriculture Industry Services 2010 a 1.6 -2.5 -3.4 5.5 6.0 -2.4 -0.9 2.0 1.3 1.6 2011 b 3.0 1.8 -3.0 4.0 14.0 6.0 1.5 2.0 3.0 3.2 2012 b 5.0 3.0 -1.0 5.0 9.0 7.4 4.9 1.0 4.4 6.0 2013 b 5.0 4.0 -1.0 4.0 8.0 7.6 5.2 2.0 4.5 5.7 2014 b 4.8 5.0 -0.5 6.0 7.0 7.7 5.4 3.0 4.7 5.2 2015 b 4.6 4.0 0.5 7.0 8.0 7.8 5.0 4.0 4.5 4.7
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.
Inflation
The trend of disinflation has been interrupted, but is set to continue from 2011 and over the forecast period, underpinned by fiscal reforms, as well as by cautious monetary and exchange-rate policies. Year-end consumer price inflation reached 10.3% in 2010, significantly above the target (6%, 2 percentage points), fuelled by high prices of food, crude oil and the pass-through from the depreciation of the dinar. Inflation is expected to rise further in early 2011 owing to rises in excise duties on tobacco and fuel, with fuel duties additionally boosted by accelerating world oil prices. Nevertheless, we expect a slowdown in consumer price inflation at end-2011, to 6.4%, as the dinar stabilises and inflationary expectations recede. The inflation outlook in 2011-12 is subject to risks related to the lifting of the freeze on public-sector wages and pensions, effective from January 2011, and pre-election spending. Assuming that wage and fiscal policies more broadly remain generally prudent, we expect gradual disinflation over the forecast period, with inflation declining towards rates now prevailing in central Europe, of around 3-4%, by 2015. The dinar was subject to turbulence in 2010, reflecting nervousness in financial markets triggered by the sovereign debt crises in Greece and the wider euro zone, and underwent another sharp real depreciation. It is forecast to appreciate
Exchange rates
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modestly in real effective terms in 2011-15, owing to gradual disinflation in Serbia. We believe that having a flexible exchange rate has been a boon during the recent global crisis and that depreciation of the dinar has boosted Serbia's competitiveness. There is a risk, however, that external factors, combined with uncertainty about domestic reforms, could result in an uncontrolled depreciation of the currency. Later in the forecast period, concern about the movement of the currency will shift as liberalisation of the capital account leads to greater speculative inflows and to possible exchange-rate volatility. There is also a short-term risk that renewed instability in the financial sector, such as that being caused by the debt crisis in the euro area, may affect emerging markets with large external financing needs, such as Serbia, putting further pressure on the dinar. External sector The sharp correction in the current-account deficit in 2009-10, to the equivalent of 5.4% of GDP in 2009 and 6.4% in 2010, will be broadly sustained over the medium term, reflecting more prudent fiscal policies. We forecast that the current account will record annual deficits of around 7-8% of GDP in 2011-15. Historically, Serbia's large current-account deficit has stemmed from a large trade deficit, reflecting a lack of external competitiveness and the propensity for strong domestic demand to suck in imports. The growth of imports in recent years, which has been driven by domestic demand, is unlikely to be repeated over the medium term, and trade should become more balanced as a result. In addition, enterprise restructuring, privatisation and other supply-side reforms should make exporters more competitive over the medium term, as will the exchange-rate adjustment of 2008-10. However, international prices for dated Brent Blend crude oil, which tumbled dramatically in 2009 because of the economic crisis, are forecast to average US$80.4/barrel in 2011-15. As Serbia is a net importer of oil, this increase will exert pressure on its external position.
Forecast summary
(% unless otherwise indicated) Real GDP growth Industrial production growth Consumer price inflation (av) Consumer price inflation (end-period) Money market interest rate (av) General government balance (% of GDP) Exports of goods fob (US$ bn) Imports of goods fob (US$ bn) Current-account balance (US$ bn) Current-account balance (% of GDP) External debt (year-end; US$ bn) Exchange rate RSD:US$ (av) Exchange rate RSD:US$ (end-period) Exchange rate RSD: (av) Exchange rate RSD: (end-period) 2010 a 1.6 1.3 6.3 c 10.3 c 10.0 2011 b 3.0 3.0 9.2 c 6.4 c 8.0 2012 b 5.0 4.4 4.8 4.2 6.0 -3.1 11.3 -18.1 -3.4 -7.3 35.4 83.79 84.30 104.15 101.00 2013 b 5.0 4.5 3.9 3.8 5.0 -2.1 12.5 -19.7 -4.0 -7.9 38.4 83.98 85.18 100.55 100.32 2014 b 4.8 4.7 3.6 3.3 4.6 -1.6 13.7 -21.2 -4.2 -7.7 41.2 84.15 81.88 99.10 99.66 2015 b 4.6 4.5 3.3 3.2 4.4 -1.5 15.0 -22.7 -4.6 -7.5 43.6 81.65 80.91 97.61 95.39
-4.5 -4.1 9.4 10.3 -15.8 -16.7 -2.7 -3.1 -6.4 -7.1 32.4 33.0 78.58 c 83.32 79.28 c 84.17 94.14 103.65 95.89 105.50
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.
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11
Monthly review: February 2011

The political scene
Grand coalition rumours resurface There have been renewed rumours about the possibility of a grand coalition between the ruling Democratic Party (DS), the largest party in the governing coalition, and its most powerful opposition rival, the Serbian Progressive Party (SNS). Underlying such a possibility is the stated desire by some DS and SNS politicians to push Serbia towards a two-party political system. On January 15th the Danas daily reported that the SNS has made overtures to the DS to form such a compact, a claim that both parties denied. According to the Danas report, in return for allowing it to join the DS in government, the SNS would not field a candidate against the president and DS leader, Boris Tadic, in the presidential election due in 2013. Rumours of a possible condominium between the two parties have circulated for a year. The leaders of both parties have made no secret of their hope for a reconfiguration of the political system into a two-party structure. Even while trading blows over the past year, Mr Tadic and the SNS leader, Tomislav Nikolic, have ensured that the possibility of rapprochement between the two parties remained open. Whether a two-party system would reflect the make-up of society is an open question. Most two-party political systems have traditionally seen competition between a party of capital and a party of labour. The complex history of Serbia and Yugoslavia over the past century rules out this possibility. It is not clear that any ideological differences remain between the DS and the SNS. The DS is firmly liberal and pro-Western, and the SNS has sought to position itself as a party of pragmatic centre-right conservatives, enthusiastic about EU membership. As it has gravitated towards the political centre, the SNS has struggled to differentiate itself from the government. There must be doubts, however, about how genuine the SNS "conversion" has been: the party has come a long way in a short space of time, since its break with the nationalist Serbian Radical Party (SRS) of Vojislav Seselj in 2008. Mr Nikolic insists that he has no desire to form a coalition with the DS. The risk to the SNS would be that voters would not be able to tell the two parties apart, and the SNS could become an adjunct to the DS. Mr Nikolic's protestations notwithstanding, the SNS continues to be broadly supportive of government policy. Recently, the SNS came out in favour of a policy mooted by the DS to slash the number of elected representatives in parliament and the number of government ministries. The DS continues to send mixed signals about a rapprochement with the SNS. On January 13th Jelena Trivan, a DS deputy chair, dismissed talk of a two-party system. On the same day Bozidar Djelic, a deputy prime minister, contradicted this, telling a magazine that a two-party system would strengthen the country's national interests and endow politics with greater legitimacy.
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Serbia
The smaller parties have been sufficiently concerned by the rumours to attack the idea of a DS-SNS compact. On January 4th Ivica Dacicthe leader of the Socialist Party of Serbia (SPS), an ally of the DS in the ruling coalitionvoiced his concern over alleged secret negotiations between DS and SNS representatives. He said that he would not support any electoral reforms that would facilitate a two-party system. The weakened Democratic Party of Serbia (DSS) has attacked the SNS for being no different from the government. The DSS has also criticised the SNS for its initiative to rewrite the constitution of 2006, seen as a central legacy of the DSS leader, Vojislav Kostunica, from his time as prime minister in 2004-08. The DSS claims that the SNS initiative is a cover for abandoning Serbia's claim to Kosovo (Mr Kostunica's constitution emphasises the territorial integrity of Serbia). The DS congress produces predictable results The external relations of the DS remain fluid, but the internal life of the party seems to have stultified following its most recent party congress. Mr Tadic was re-elected unopposed as DS leader on December 18th. A rival party boss, Dragan Djilasthe mayor of the capital, Belgradeconsolidated his power base by winning one of the five deputy leadership positions. The other victors were Dusan Petrovic, a DS stalwart; Bojan Pajtic, a regional party boss; Dragan Sutanovac, the defence minister; and Ms Trivan). The foreign minister, Vuk Jeremic, failed to secure a deputy leader position, lacking strong backing from the president. Compared with past DS congresses, the lacklustre election suggests a fossilised party structure, lacking the internal vigour necessary to propel it forward as it enters a pre-election year. Looking to the election in 2012 and beyond, the government published a document entitled Serbia 2020, outlining a vision for the next ten years. The document recapitulates a broad range of DS goals, such as fostering regional stability in the Balkans and launching administrative reforms. However, nothing that the government does seems able to captivate an electorate ground down by poverty, political alienation and the prospect of further economic woe. A survey shows Serbians to be the most pessimistic A Gallup survey of expectations for 2011, the Global Barometer of Hope and Despair, was published in late 2010. It revealed residents of Serbia as the most pessimistic of all nations polled. Gallup defines "optimists" and "pessimists" according to the difference between the proportions who say that 2011 will be a "year of prosperity" and those who say that it will be a "year of economic difficulty". The results show Serbia scoring a profoundly depressed -45 on the net hope score (Romania scores -46). The average Balkan score of -20 is brought up by Kosovo's score of 32. In answer to a separate question of whether 2011 will be better or worse, Serbia is bottom of the regional table, with a score of -40.
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Global barometer of hope and despair, 2011

(% of respondents, unless otherwise indicated) Economic prosperity 19 18 13 46 21 6 7 14 11 8 24 11 Same 35 39 27 33 42 31 36 45 41 44 49 44 Economic difficulty 38 34 44 14 34 52 52 34 41 44 25 24 Don't know 9 10 16 8 4 10 6 9 7 4 3 21 Variation a -20 -16 -31 32 -13 -46 -45 -20 -30 -36 -1 -13
Balkans Bosnia and Hercegovina Bulgaria Kosovo Macedonia Romania Serbia Central Europe & Baltics Czech Republic Latvia Lithuania Poland
Note. Respondents were asked the question: "Compared with this year, in your opinion, will next year be a year of economic prosperity, economic difficulty or remain the same?"
a Percentage points.
Source: Gallup.
The findings of the poll are echoed in the findings of two other recent national surveys. A poll conducted by the Faculty of Political Science at the University of Belgrade reported on January 11th that 74% of the 1,196 people polled were dissatisfied with the government. Furthermore, the drop in support for EU integration was dramatic, with a fall of almost 10 percentage points compared with a year earlier in those expressing a desire to see Serbia in the EU (52.9%, compared with 62.7% in 2010 and 68.6% in 2006).
Economic policy
There is a large budget deficit in the fourth quarter In the fourth quarter central government budget revenue rose by 8.4% year on year and expenditure expanded by 12.5%, resulting in a deficit of RSD29bn (US$366m), the largest quarterly deficit in 2010. The growth in tax receipts decelerated to 7.4% year on year (from 8% in the third quarter and 11.7% in the second quarter), because of slowing growth in valued-added tax (VAT) and lower customs tariffs collection. VAT, the largest source of income, grew by 4.1% year on year in the fourth quarter, well below inflation, and down from 9.3% in the third quarter and 13.9% in the second quarter. The second-largest revenue source, excise taxes, grew by a robust 15.8% year on year, on an upward trend compared with previous quarters. Personal and corporate income taxes rose by 12.8% and 14.3%, respectively, also on an upward trend. On the expenditure side, there was a significant loosening of spending policy in the fourth quarter compared with previous quarters. Expenditure grew by 12.5% year on year, driven largely by current expenditure (up by 12.4%). The wage bill rose in line with the rest of the year (up by 3.7%), but spending in most other current categories accelerated. Expenditure related to goods and services grew by 44.4%, and interest payments surged by 103%. Towards the end of the year the government accelerated social assistance transfers (up by 38.3%) and highly
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discretionary spending on subsidies (up by 31%). The greatest expense, transfers to social security funds, declined by 5.2%, a welcome result of the nominal freeze of pensions. Capital expenditure rose by 13.9%, despite huge underspending by the National Investment Plan (NIP), which declined by 39%. Annual budget results are better than the target Full-year central budget revenue totalled RSD712.2bn, up by 8.6% from 2009 and almost exactly in line with the revised budget plan agreed with the IMF in late 2010. Tax revenue (up by 7.3%) benefited from a good indirect tax collection. An increase in VAT (up by 7.6%) and excises (up by 13.2%) together secured 64% of all budget income. Direct taxes took longer to recover from the crisis, and posted growth of 5.4% for personal income tax and 1.3% for corporate income tax. Total expenditure in 2010 amounted to RSD812.5bn, 8.8% more than in 2009 and 1.6% less than foreseen by the IMF target. Current expenditure was more or less in line with the IMF plan (99.5% of the target), driven by the two largest categories, the wage bill (up by 3.4%) and transfers to social security funds (up by 1.3%). The reduction of their burden on the budget through the nominal freeze of wages and pensions was the main element of the fiscal adjustment plan agreed with the IMF as part of the stand-by agreement. Although this goal was achieved to some extent (the share of both categories in total expenditure dropped to 56.3% from 60% in 2009), more could have been done if the wage freeze had been accompanied by a greater reduction in public administration employment. Capital expenditure was up by 3.2% compared with 2009, but was 4% below the original IMF target.
Republican budget, 2010
(RSD bn unless otherwise indicated) Revenue Tax revenue Personal income tax Corporate income tax Value-added tax Excises Customs tariffs Other tax revenue Non-tax revenue Grants 1 Qtr % change a 153.0 3.8 135.4 2.0 16.6 1.2 10.7 -12.1 71.9 3.5 24.0 9.6 9.5 -17.5 2.7 98.2 17.5 20.6 0.2 60.9 2 Qtr % change a 3 Qtr % change a 169.2 14.1 183.2 8.1 147.4 11.7 160.2 8.0 18.8 3.9 18.6 3.1 6.0 7.6 6.0 9.8 77.3 13.9 83.2 9.3 31.0 15.2 37.8 10.9 11.0 -5.7 11.3 -3.1 3.3 82.6 3.2 10.6 21.5 33.0 22.7 10.8 0.3 38.9 0.3 -56.8 4 Qtr % change a Year % change a 206.9 8.4 712.2 8.6 173.7 7.4 616.6 7.3 21.2 12.8 75.2 5.4 7.2 14.3 29.9 1.3 87.0 4.1 319.4 7.6 42.7 15.8 135.6 13.2 12.5 -5.5 44.3 -7.8 3.1 3.9 12.3 35.8 27.2 12.4 88.9 18.0 6.0 19.0 6.7 12.0
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Republican budget, 2010

(RSD bn unless otherwise indicated) Expenditure Current expenditure Expenditure on employees Purchase of goods & services Interest payment Subsidies Grants to international organisations Transfers to other levels of government Transfers to social security funds Social assistance from the budget Other current expenditure Capital expenditure Capital expenditure National Investment Plan Net lending Balance
a Year on year.
Source: Ministry of Finance.
1 Qtr % change a 173.6 9.6 168.5 7.8 47.0 3.7 10.7 48.8 6.2 19.7 6.5 -3.5 0.1 14.0 64.7 17.7 1.6 1.9 1.8 0.1 3.2 -20.6 26.4 1.9 7.8 5.9 13.4 46.5 42.2 475.4 341.3 -
2 Qtr % change a 3 Qtr % change a 197.2 3.7 205.9 9.4 186.9 4.2 189.7 7.8 47.0 2.8 47.2 3.3 12.4 -11.4 13.9 6.6 7.7 84.8 7.3 16.5 13.3 27.3 15.9 20.8 0.2 14.6 67.1 22.2 2.4 3.9 2.5 1.4 6.3 -28.0 108.7 -15.2 0.7 13.3 53.3 -35.3 -42.1 -17.7 34.7 0.1 14.8 67.9 20.1 2.5 7.8 3.9 4.0 8.4 -14.7 -13.5 22.5 3.1 12.9 21.8 4.6 -32.8 127.9 78.5 -
4 Qtr % change a Year % change a 235.8 12.5 812.5 8.8 210.5 12.4 755.5 8.1 49.2 3.7 190.4 3.4 23.1 44.4 60.1 19.7 8.9 103.0 30.1 50.5 13.9 31.0 49.5 21.1 0.2 17.3 67.0 27.2 3.8 18.0 13.3 4.7 7.4 -29.0 59.9 14.2 -5.2 38.3 15.7 13.9 62.9 -38.8 10.9 0.6 60.7 266.7 87.2 10.3 31.6 21.5 10.1 25.3 -100.3 46.4 4.3 1.3 18.2 24.0 3.2 10.0 -8.7 50.7 -
The 2010 deficit totalled RSD100.3bn and was RSD23bn (20%) lower than the IMF target. This outcome was possible owing to a slight overshooting of projected revenue (of 0.4%) and slightly lower spending (of 1.6%), largely because of lower than planned capital expenditure and net lending. Parliament approves the 2011 budget law As a prior action necessary for the completion of the sixth review of the standby arrangement, parliament approved the 2011 draft budget law. The budget envisages revenue of RSD724.2bn, expenditure of RSD844.9bn and a deficit of RSD120.5bn. The draft law assumes real GDP growth of 3% and inflation of 4.5% (1.5 percentage points). Collection of taxes is expected to rise by 10.1% compared with 2010. On the expenditure side, the wage bill will be 15% higher, and three increases in salaries and pensions are planned, the first (of 2%) effective from January 2011. Parliament also introduced one of several proposed VAT rate rises to supplement 2011 tax collection: VAT on tropical fruit was raised from 8% to 18%.
Economic performance
GDP growth accelerates in the third quarter Real GDP growth accelerated to 2.7% year on year in the third quarter, from 2% in the second quarter and 0.3% in the first quarter. The Republican Statistical Office's preliminary estimate for full-year growth is 1.5%, implying much weaker fourth-quarter growth, of 0.8-1.2%. A good third-quarter result was largely owing to a rebound in retail trade and financial intermediation, coupled with the continuation of robust growth in transport and communication, and manufacturing.
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Retail trade, the third-largest sector by value added, posted an impressive improvement in the third quarter, expanding by 6.2% year on year, up from 1% in the second quarter and -7% in the first quarter. Financial intermediation accelerated to 8.7% (up from 6.9% in the second quarter and 5.2% in the first quarter). As in previous quarters, the two largest sectorstransport and communication, and manufacturingposted robust growth, of 7.4% and 5%, respectively. Recession persists in construction, which contracted again, by 9.2%, in the third quarter (less than the contraction of 12.5% in the second quarter and 13.8% in the first quarter). After eight quarters of continuous decline, value added in construction in the third quarter was 25% smaller than in the year-earlier period. The energy sector posted disappointing results, returning to contraction, of 4.4% year on year, following a contraction of 4.1% in the first quarter and a rebound in the second quarter of 0.2% growth. The slowdown in industry continues Fourth-quarter industrial data confirm the slowdown in the sector. The contraction of industrial output in October (of 2.9% year on year) was followed by a smaller contraction in November (of 0.5%). Improvements were registered in most key industries. Manufacturing expanded by 2.1% year on year (up from -3.6% in October). The largest sector, foodstuffs, contracted by 0.7% year on year, an improvement from a 4.7% decline in October. Chemicals expanded by 2.5% (up from -2.3% in October). Non-metal mineral products grew by 13.7%, improving on a 4.9% fall in October. Basic metals declined by 8.2% year on year (after a 7.9% fall in October). The production of motor vehicles plunged by 50.2% year on year (following a 36.2% drop in October). The automotive sector's losses in the second half far outweighed a massive expansion in the first four months as a consequence of the production of the Fiat Punto at the Fiat-Zastava plant in Kragujevac. Recent losses depressed overall production in the sector, with output in the first 11 months down by 8.3% year on year. This rules out a positive contribution of the automotive industry to GDP in 2010, and suggests that the Fiat-driven revival of the industry is far from materialising.
Comparative price levels

Serbia: a medium-expensive country Recently published data on comparative price levels in the EU and the western Balkans in 2009 revealed some interesting patterns in relative price developments in Serbia. The table below presents comparative price levels for the most important categories of goods and services, including the broadest (GDP and household final consumption expenditure) in 2009 as a percentage of the EU average. Domestic prices have been converted into a common currency using the average annual exchange rate; thus the data take account not only of nominal price levels but also of exchange rate changes. The level rises whenever the local currency appreciates and declines when the currency depreciates.
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Comparative price levels, 2009

(EU=100) GDP Food Bread & cereals Meat Fish Milk, cheese & eggs Oils & fats Fruits & vegetables Non-alcoholic beverages Alcoholic beverages Tobacco Clothing Footwear Electricity, gas & other fuels Furniture & furnishings, carpets Household appliances Transport Personal transport equipment Transport services Communication Audiovisual, photographic & information processing Restaurants & hotels Household final consumption expenditure Consumer goods Non-durable goods Semi-durable goods Durable goods Consumer services
Source: Eurostat.
Comparative price level 48.0 69.3 61.0 65.8 85.1 80.6 87.4 62.1 79.9 89.7 30.4 105.1 101.1 48.4 60.0 84.9 72.3 88.9 57.7 42.2 97.0 58.2 56.2 70.3 64.4 96.4 82.1 42.3
Change from 2008 -2.4 -11.3 -10.7 -16.2 -5.7 -9.2 -43.5 -10.0 2.8 7.6 0.4 5.4 -3.0 0.0 -3.6 -6.9 -2.5 -8.5 0.1 -1.0 -3.6 -1.9 -2.6 -4.2 -4.3 -0.1 -6.2 -0.9
In 2009 the average price level of Serbian GDP was 48% of the EU average. Consumer goods reached 70.3% of the EU average and services reached 42.3%. Higher convergence of goods prices is a typical consequence of import competition, and thus much more important for consumer goods than consumer services. Food prices were around 70% of the EU level, driven up by fruits and vegetables (62.1%), and by dairy products (80.6%). Tobacco remains the cheapest consumer good in Serbia in relative terms, costing less than one-third of the EU average, owing to sharply lower excise taxes. Surprisingly, prices of perfect tradeables, clothing and footwear, are more expensive on average in Serbia than in the EU (by 5.1% and 1.1%, respectively), possibly indicating a less competitive and efficient network of retail outlets. The same may be true for relatively expensive household appliances (85% of the EU level), transport equipment (88.9%), and audiovisual and electronic equipment (97%), which all come close to EU levels, despite the considerably lower "domestic" cost component (wages, rents, transport and other related costs). This component has a significantly higher input in prices of non-tradeables (most services). Therefore, service-dominated spending components are generally much cheaper than those containing mostly goods. This is evident in the relatively low comparative price levels of transport services (57.7%), communication (42.2%), and hotels and restaurants (58.2%).
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The level drops in 2009 Despite a long-term trend of convergence towards EU levels, Serbia's average comparative price level in 2009 (48%) dropped from 2008 (50.4%). Rather than reflecting nominal price ratios of Serbia vis--vis the EU, this decline was predominantly a consequence of the depreciation of the dinar. The dinar lost 15.4% of its value against the euro, and generally less against the currencies of non-euro EU members. With considerable nominal price stickiness in Serbia, this led to a relative decline in domestic prices vis--vis those in the EU. The greatest slump in comparative price levels was in food prices, which dropped by 11.3 percentage points, to 69.3%, in 2009. In addition to the exchange-rate effect, this may signal some improvements in the efficiency and competitiveness of Serbian foodstuffs, and in particular of oils and fats, which posted a contraction of 43 percentage points. Despite a general trend of divergence from 2008 levels, some consumer categories saw their comparative price level increase notwithstanding the depreciation of the dinar. This was the case for beverages, tobacco (because of converging excise tax rates) and clothing (surprising, given the already high level of 99.7% in 2008). Regional comparison
Compared with its regional peers, Serbia ranks as a medium-expensive country. With a comparative price level of GDP of 48%, roughly equal to Montenegro, Serbia is cheaper than Bosnia and Hercegovina (BiH; 51%), Turkey (56.4%), and Croatia (68.8%), but more expensive than Albania (43.5%) and Macedonia (39.5%). In terms of GDP per head, Serbia's price level is in line with its peers. Comparative price levels of GDP in the Balkans and Turkey
(EU=100) Croatia Macedonia Turkey Albania Bosnia and Hercegovina Montenegro Serbia
Source: Eurostat.
2005 63.2 35.8 59.1 41.6 43.8 42.0 38.8
2006 65.3 36.5 57.5 41.6 44.7 40.8 40.9
2007 64.4 36.8 60.5 42.6 45.9 42.8 47.1
2008 69.0 39.0 61.4 43.2 47.2 45.7 50.4
2009 68.8 39.5 56.4 43.5 51.0 47.8 48.0
Convergence In line with the pattern across all European transition economies, price levels in Serbia have converged upwards over the years. Between 2005 and 2008 the comparative price level of GDP rose by 11.6 percentage points, from 38.8% to 50.4%, as a result of rising incomes and the gradual integration of the Serbian economy with the world economy. The sharp depreciation of the dinar and the contraction of GDP led to the decline in the comparative price level of GDP to 48% in 2009. GDP per head boosted prices through a range of demand and supply effects, including wages and the costs of operating businesses. The effect of the greater integration with the global economy proceeded mainly through large inflows of foreign direct investment (FDI) and an increasing importance of foreign trade for the economy. The crisis brought economic contraction to all countries in the region in 2009, but Serbia was the only one to experience a parallel decline in comparative price levels (apart from Croatia, which posted a decline of 0.2 percentage points). This is primarily the result of the sharp depreciation of the dinar.
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GDP per head versus comparative price levels, 2009

Comparative price level of GDP (EU=100)
75.0 70.0 65.0 60.0 55.0 50.0 45.0 40.0 35.0 6,000 8,000 Albania Montenegro Macedonia 10,000 12,000 14,000 GDP per head (US$ at PPP) 16,000 18,000 Turkey Bosnia & Hercegovina Serbia Croatia
Sources: Eurostat; Economist Intelligence Unit.
Trajectories of GDP and comparative price levels, 2005-09

Comparative price level of GDP (EU=100)
70.0 65.0 60.0 55.0 50.0 Serbia 45.0 40.0 35.0 5,000 2005 2005 2009 Macedonia 10,000 GDP per head (US$ at PPP)
Sources: Eurostat; Economist Intelligence Unit.
2009 2005 Croatia
2009
15,000
20,000
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Data and charts

Annual data and forecast
Pl ea se se e g ra p hi c b el ow
2006 a 31,815 2,126 5.2 6.9 b 4.3 b 14.5 b 4.9 b 7.8 b -0.2 5.4 6.1 7.4 9,412 20.9 40.8 42.3 -1.5 42.6 59.98 79.00 12.7 13.2 38.0 38.3 10.2 -6,271 6,442 -12,713 -52 -415 3,751 -2,987 19,680 2,148 1,558 11,875
2007 a 41,637 2,421 6.9 4.0 b 18.2 b 25.6 b 17.2 b 26.0 b -7.8 5.0 10.8 7.4 10,402 18.1 41.4 43.2 -1.9 34.3 53.73 79.24 6.5 d 6.3 24.4 42.5 4.4 -9,130 8,756 -17,886 -348 -830 3,974 -6,334 26,378 3,247 2,334 14,215
2008 a 50,749 2,833 5.5 7.6 b 1.6 b 1.9 b 8.9 b 9.3 b 9.1 1.8 6.1 7.3 11,259 14.0 40.4 42.6 -2.2 33.1 62.90 88.60 11.7 13.0 -3.3 9.8 9.6 -11,120 10,973 -22,093 -266 -1,355 3,746 -8,994 30,918 4,738 3,527 11,475
2009 a 44,701 b 3,023 b -3.0 -3.0 b -5.0 b 1.3 b -12.4 b -17.3 b 2.2 -10.0 -0.1 7.3 b 11,065 b 16.6 39.5 43.7 -4.1 35.6 66.73 95.89 8.4 5.6 7.3 21.5 10.3 -6,659 8,368 -15,027 36 -710 4,925 -2,408 32,006 b 2,688 b 2,100 b 15,216
2010 b 42,305 3,324 1.6 -2.5 -3.4 5.5 6.0 -2.4 2.0 1.3 1.6 7.3 11,349 17.2 40.5 45.0 -4.5 39.5 79.28 a 105.50 6.3 a 12.4 3.0 17.0 10.0 -6,406 9,372 -15,778 87 -797 4,400 -2,716 32,398 3,647 3,000 13,800
2011 c 43,114 3,592 3.0 1.8 -3.0 4.0 14.0 6.0 2.0 3.0 3.2 7.2 11,909 16.7 40.1 44.2 -4.1 41.0 84.17 101.00 9.2 a 5.3 14.0 28.0 8.0 -6,415 10,309 -16,724 77 -932 4,200 -3,070 33,014 4,203 3,452 17,020
2012 c 46,885 3,929 5.0 3.0 -1.0 5.0 9.0 7.4 1.0 4.4 6.0 7.2 12,822 15.9 41.0 44.1 -3.1 39.0 84.30 100.32 4.8 5.0 12.0 18.0 6.0 -6,722 11,340 -18,062 75 -976 4,200 -3,423 35,372 3,356 2,549 17,530
GDP Nominal GDP (US$ m) Nominal GDP (RSD bn) Real GDP growth (%) Expenditure on GDP (% real change) Private consumption Government consumption Gross fixed investment Exports of goods & services Imports of goods & services Origin of GDP (% real change) Agriculture Industry Services Population and income Population (m) GDP per head (US$ at PPP) Recorded unemployment (av; %) Fiscal indicators (% of GDP) Public-sector revenue Public-sector expenditure Public-sector balance Net public debt Prices and financial indicators Exchange rate RSD:US$ (end-period) Exchange rate RSD: (end-period) Consumer prices (av; %) Producer prices (av; %) Stock of money M1 (% change) Stock of money M3 (% change) Money market interest rate (av; %) Current account (US$ m) Trade balance Goods: exports fob Goods: imports fob Services balance Income balance Current transfers balance Current-account balance External debt (US$ m) Debt stock Debt service paid Principal repayments International reserves (US$ m) Total international reserves
Source: IMF, International Financial Statistics.
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Consumer price index from 2007.
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Quarterly data
2008 4 Qtr Central government finance (RSD bn) Revenue Expenditure Balance Output GDP at constant 2002 prices (RSD bn) GDP (% change, year on year) Industrial production index (2009=100) Mining & quarrying (2009=100) Manufacturing (2009=100) Electricity, gas & water supply (2006=100) Employment, wages & prices Employment ('000) Unemployed ('000) Average net wages, nominal (RSD per month) Consumer prices (% change, year on year) Sectoral trends Retail trade turnover, current prices (2007=100) Retail trade turnover, constant prices (2007=100) Financial Indicators Exchange rate RSD: ( end-period) Exchange rate RSD:US$ (end-period) Treasury bill rate (end-period; %) M1 (end-period; RSD bn) M1 (% change, year on year) M3 (end-period; RSD bn) M3 (% change, year on year) Foreign trade (US$ m) Exports fob Imports cif Trade balance Balance of payments (US$ m) Current-account balance Reserves excl gold (end-period) 175.2 205.5 -30.3 356.8 2.9 117.3 110.9 120.3 108.8 1,992 728 35,517 10.7 125.7 110.0 88.60 62.90 10.2 240.7 -3.3 992.2 9.8 2,301 5,215 -2,914 -2,030 11,121
2009 1 Qtr 147.3 158.4 -11.1 297.0 -4.3 91.5 96.4 85.1 111.9 1,958 758 30,120 10.1 n/a n/a 94.78 71.59 8.2 210.0 -7.6 1,015.2 6.5 1,667 3,726 -2,059 -1,273 10,363
2 Qtr 148.3 190.2 -41.9 321.3 -4.5 94.2 86.4 97.8 84.1 1,901 763 31,808 8.7 n/a n/a 93.66 66.77 6.0 222.9 -1.1 1,061.4 12.1 2,090 3,788 -1,698 -336 12,142
3 Qtr 169.5 188.2 -18.7 341.4 -2.2 101.5 107.2 103.1 94.5 1,882 737 31,737 7.9 n/a n/a 93.01 63.60 5.3 231.0 4.1 1,087.2 10.4 2,214 4,003 -1,789 -485 12,896
4 Qtr 186.1 209.7 -23.6 350.5 -1.7 112.8 110.0 113.9 109.6 1,861 730 33,366 5.8 n/a n/a 95.89 66.73 4.4 258.4 7.3 1,205.6 21.5 2,373 4,539 -2,166 -736 14,750
2010 1 Qtr 153.0 173.6 -20.6 297.9 0.3 93.7 106.1 88.8 107.3 1,845 779 31,924 4.7 n/a n/a 99.76 74.38 4.3 224.9 7.1 1,217.8 20.0 2,031 3,813 -1,782 -1,055 13,526
2 Qtr 169.2 197.2 -28.0 327.8 2.0 100.8 102.0 105.1 85.0 1,830 747 34,192 4.2 n/a n/a 104.37 85.48 4.6 234.0 5.0 1,296.2 22.1 2,395 4,010 -1,615 -777 12,282
3 Qtr 183.2 205.9 -22.7 350.7 2.7 105.6 124.1 108.2 90.5 1,807 721 34,372 6.5 n/a n/a 106.17 78.11 n/a 242.9 5.1 1,306.0 20.1 2,483 4,245 -1,762 -681 12,923
Sources: Republican Statistical Office; National Bank of Serbia, Statistical Bulletin.
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Monthly data
Jan Feb Mar Exchange rate RSD:US$ (av) 2008 55.58 56.23 53.59 2009 70.60 73.18 72.46 2010 68.17 72.13 73.44 Exchange rate RSD:US$ (end-period) 2008 55.58 54.97 52.13 2009 72.87 73.68 71.59 2010 70.64 73.30 74.38 Exchange rate RSD: (end-period) 2008 82.8 83.5 82.3 2009 94.1 93.8 94.8 2010 98.5 99.6 99.8 Central budget revenue (RSD bn) 2008 54.3 47.5 56.9 2009 46.9 41.8 58.6 2010 51.8 43.2 58.0 Central budget expenditure (RSD bn) 2008 50.8 50.7 57.9 2009 46.9 51.8 59.7 2010 52.4 58.5 62.6 Central budget balance (RSD bn) 2008 3.5 -3.2 -1.0 2009 0.0 -10.0 -1.1 2010 -0.7 -15.3 -4.6 M1 (end-period; % change, year on year) 2008 31.0 29.5 17.6 2009 -10.5 -5.3 -7.6 2010 11.9 3.1 7.1 M3 (end-period; % change, year on year) 2008 50.4 46.5 42.5 2009 7.4 9.3 6.5 2010 20.3 18.6 20.0 Deposit rate (%) 2008 4.3 5.0 5.2 2009 7.7 8.4 8.1 2010 4.9 5.5 4.9 Lending rate (%) 2008 11.3 12.8 14.6 2009 18.6 21.0 17.4 2010 11.5 12.7 11.3 Consumer prices (av; % change, year on year) 2008 11.5 12.5 13.6 2009 10.0 10.7 9.4 2010 4.8 3.9 4.7 Producer prices ( av; % change, year on year) 2008 12.1 12.8 14.1 2009 4.9 6.0 5.2 2010 11.0 9.6 11.5
Apr 51.25 71.22 74.05 51.46 71.64 74.96 80.1 95.2 99.3 56.9 50.5 55.9 64.2 66.3 66.1 -7.2 -15.9 -10.2 14.5 -4.4 6.3 39.3 10.0 18.3 5.6 7.7 5.0 16.4 17.3 10.9 14.6 8.8 4.3 14.4 5.2 12.5
May 52.71 69.40 80.55 53.09 67.74 83.42 82.4 94.7 102.7 49.1 45.4 55.7 58.1 60.3 65.8 -9.0 -14.8 -10.1 10.5 -4.1 5.2 39.4 6.4 22.7 5.8 7.3 4.6 16.3 15.8 10.4 14.5 9.1 3.7 13.0 5.3 11.6
Jun 51.58 66.86 84.71 50.01 66.77 85.48 79.0 93.7 104.4 54.6 52.4 57.7 56.8 63.5 65.3 -2.3 -11.1 -7.6 9.7 -1.1 5.0 33.7 12.1 22.1 6.1 6.9 4.6 16.9 15.2 10.6 14.9 8.3 4.2 13.6 6.3 10.6
Jul 49.69 66.16 82.05 49.40 65.93 81.24 77.0 93.2 106.2 60.8 62.8 66.1 52.3 63.6 74.1 8.5 -0.9 -8.0 1.1 5.6 6.6 25.6 13.8 24.9 6.3 6.4 4.4 16.5 13.6 10.7 13.9 8.5 5.1 14.8 4.9 11.2
Aug 51.08 65.41 81.57 51.81 65.15 83.00 76.5 93.1 105.1 43.6 51.8 59.9 50.2 61.8 62.6 -6.6 -10.0 -2.8 -0.8 6.4 2.6 23.7 11.8 19.2 6.3 6.3 4.4 16.6 13.6 11.7 11.5 8.0 6.6 14.9 5.3 11.6
Sep 53.12 64.12 80.84 53.28 63.60 78.11 76.6 93.0 106.2 54.1 54.9 57.2 54.9 62.8 69.2 -0.8 -7.9 -12.0 1.6 4.1 5.1 24.5 10.4 20.1 6.4 6.5 4.9 17.4 14.4 12.1 10.9 7.3 7.7 13.7 5.0 13.8
Oct 60.84 62.83 76.55 66.34 63.00 77.34 85.0 93.4 107.4 57.9 60.5 59.2 57.3 63.9 73.9 0.6 -3.4 -14.7 3.8 2.4 9.2 23.0 12.9 21.0 6.7 6.3 4.8 17.0 13.4 12.6 12.3 5.2 8.9 12.9 4.7 14.6
Nov 67.93 63.17 78.30 69.02 62.93 81.76 89.2 94.8 107.2 49.0 59.8 69.1 63.8 63.0 65.9 -14.8 -3.2 3.2 0.2 2.7 3.1 13.9 15.5 17.9 7.2 5.9 n/a 19.6 12.7 n/a 10.9 5.9 9.6 11.1 6.5 14.5
Dec 64.84 65.76 80.39 62.90 66.73 79.28 88.6 95.9 105.5 68.3 65.9 78.6 84.4 82.8 96.1 -16.2 -17.0 -17.4 -3.3 7.3 n/a 9.8 21.5 n/a 7.3 5.1 n/a 18.1 11.8 n/a 8.6 6.6 n/a 9.3 7.3 15.8
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Serbia
23
Jan Feb Mar Apr May Average monthly nominal net wages (% change, year on year) 2008 17.0 22.8 18.7 22.3 19.1 2009 2.3 0.4 -1.5 0.0 -3.3 2010 3.6 3.9 10.4 7.3 7.6 Average monthly real net wages (% change, year on year) 2008 5.7 10.4 6.2 9.1 6.8 2009 -6.6 -9.7 -10.8 -9.5 -12.9 2010 -4.0 -2.3 2.6 -0.2 0.7 Goods exports fob (US$ m) 2008 696 854 957 969 1,063 2009 483 524 660 609 709 2010 572 649 810 775 785 Goods imports cif (US$ m) 2008 1,600 1,902 2,127 2,315 2,284 2009 1,057 1,231 1,438 1,263 1,184 2010 1,065 1,254 1,494 1,326 1,278 Trade balance (fob-cif basis; US$ m) 2008 -904 -1,048 -1,170 -1,346 -1,221 2009 -574 -707 -778 -654 -475 2010 -493 -605 -684 -551 -493 Foreign-exchange reserves excl gold (US$ m) 2008 14,203 14,283 14,716 14,280 13,767 2009 9,944 10,090 10,363 10,414 12,063 2010 14,368 13,896 13,526 13,751 12,700
Sources: IMF, International Financial Statistics; National Bank of Serbia; Haver Analytics.
Jun 17.1 -2.7 7.5 4.4 -11.8 1.0 1,043 772 835 2,266 1,341 1,406 -1,223 -569 -571 14,033 12,142 12,282
Jul 19.1 -1.5 6.3 6.7 -10.5 -0.7 1,143 757 825 2,536 1,385 1,348 -1,393 -628 -523 14,091 12,592 12,693
Aug 17.7 -5.4 8.4 6.5 -14.0 0.4 976 678 773 1,984 1,244 1,376 -1,008 -566 -603 13,668 12,717 12,149
Sep 17.1 -5.0 10.4 6.6 -13.7 1.5 972 779 885 2,102 1,374 1,521 -1,130 -595 -636 13,577 12,896 12,923
Oct 19.5 -7.5 8.5 7.8 -14.7 -1.3 896 837 946 2,024 1,500 1,433 -1,128 -663 -487 11,678 13,365 12,925
Nov 14.4 -6.1 9.1 4.5 -14.2 -1.5 686 785 978 1,488 1,553 1,634 -802 -768 -656 11,350 13,980 n/a
Dec 12.1 -4.8 7.6 4.8 -14.0 -3.5 719 751 n/a 1,703 1,486 n/a -984 -735 n/a 11,121 14,750 n/a
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24
Serbia
Annual trends charts

Annual trends charts

Real GDP growth
(% change)
Serbia 8.0 6.0 4.0 2.0 6.0 0.0 -2.0 -4.0 2006 07 08 09 10 11 12 4.0 2.0 0.0 2006 07 08 09 10 11 12 East-central Europe World 14.0 12.0 10.0 8.0
Consumer price inflation

(av; %)
Serbia East-central Europe World
Source: Economist Intelligence Unit.
Budget balance
(% of GDP)
Serbia 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 -3.5 -4.0 -4.5 -5.0 East-central Europe 0.0 -2.0 -4.0 -6.0 -8.0 -10.0 -12.0 -14.0 -16.0 -18.0 -20.0
Current-account balance
(% of GDP)
Serbia East-central Europe
2006
07
08
09
10
11
12
2006
07
08
09
10
11
12
Main destinations of exports, 2009

(share of total)
Others 66.6% Bosnia & Hercegovina 11.1%
Main origins of imports, 2009

(share of total)
Others 66.2% Germany 11.6%
Italy 9.3% Germany 8.4% Austria 4.6%
Italy 9.2% Hungary 6.6% Slovenia 6.4%
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Serbia
25
Monthly trends charts

Monthly trends charts

Exchange rate
(RSD:US$; av)
90.0 85.0 80.0 75.0 70.0 65.0 60.0 55.0 50.0 45.0 Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 2007 08 09 10
Price inflation
(% change, year on year)
Consumer prices 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 2007 08 09 10
Producer prices
Wage growth
Real wages 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0 Nominal wages 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0
Monetary aggregates
M1 M2
Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 2007 08 09 10
Foreign trade
(US$ m; goods only)
Exports 3,000 2,500 2,000 1,500 1,000 500 0 -500 -1,000 -1,500 -2,000 Imports Balance 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000
Foreign-exchange reserves
(US$ m)
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26
Serbia
Comparative economic indicators

Comparative economic indicators, 2009

Gross domestic product
(US$ bn; market exchange rates)
Russia Poland Czech Republic Romania Hungary Ukraine Kazakhstan Slovakia Croatia Slovenia Belarus Bulgaria Serbia Azerbaijan Lithuania Uzbekistan Latvia Estonia Bosnia and Hercegovina Albania Georgia Macedonia Armenia Turkmenistan Moldova Tajikistan Kyrgyz Republic 0 20 40 60
1,231.8 430.6
Gross domestic product per head

(US$ '000; market exchange rates)
Slovenia Czech Republic Slovakia Estonia Croatia Hungary Latvia Poland Lithuania Russia Romania Kazakhstan Bulgaria Serbia Belarus Azerbaijan Bosnia and Hercegovina Macedonia Albania Armenia Ukraine Georgia Turkmenistan Moldova Uzbekistan Kyrgyz Republic Tajikistan 0.0
24.5
80 100 120 140 160 180 200
5.0
10.0
15.0
20.0
Sources: Economist Intelligence Unit estimates; national sources.
Gross domestic product

Azerbaijan Uzbekistan Tajikistan Albania Kyrgyz Republic Poland Kazakhstan Belarus Macedonia Bosnia and Hercegovina Serbia Georgia Czech Republic Slovakia Bulgaria Croatia Turkmenistan Hungary Moldova Romania Russia Slovenia Estonia Armenia Lithuania Ukraine Latvia -20.0
Consumer prices
Ukraine Uzbekistan Belarus Russia Turkmenistan Serbia Kazakhstan Kyrgyz Republic Tajikistan Romania Lithuania Hungary Latvia Poland Armenia Bulgaria Croatia Albania Georgia Slovakia Azerbaijan Czech Republic Slovenia Moldova Estonia Bosnia and Hercegovina Macedonia -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
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Serbia
27
Country snapshot
Basic data
Total area Population 88,361 sq km (including Kosovo) 7.5m (2002 census, excluding Kosovo); 9.5m (Economist Intelligence Unit estimate, including Kosovo) Population in '000 (2002) Belgrade (capital) Novi Sadb Nis 1,576a 299a 251a Kragujevac Pristinac 176a 108
Main cities
a Figures from the 2002 census in Serbia. b Capital of Vojvodina. c Capital of Kosovo. (This
figure is from the 1981 census. Most Kosovo Albanians did not participate in the 1991 and 2002 censuses.)
Climate Weather in Belgrade (altitude 132 metres)
Continental Hottest month, July, 17-28C (average daily minimum and maximum); coldest month, January, -3C (average); driest months, February and March, 46 mm average rainfall; wettest month, June, 96 mm average rainfall Serbian, Albanian (in Kosovo) and Hungarian (in Vojvodina) Metric system; a "wagon" of 10 tonnes is often used in trade figures Serbian dinar (RSD) = 100 paras One hour ahead of GMT Calendar year January 1st-2nd (New Year); January 7th (Orthodox Christmas); February 15th (National Day of Serbia); Orthodox Easter (April 22nd and 25th in 2011); May 1st-2nd (Labour Day)
Languages Weights and measures Currency Time Fiscal year Public holidays
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28
Serbia
Political structure
Official name Form of state Legal system National legislature Elections Head of state National government Main political parties Republic of Serbia Democratic republic Based on the new Serbian constitution of November 10th 2006 Unicameral: Assembly (Skupstina) of 250 seats May 11th 2008 (parliamentary); next parliamentary election due in 2012. January 20th and February 3rd 2008 (presidential); next presidential election due in 2013 President, elected by universal suffrage. Boris Tadic, the leader of the Democratic Party (DS), was elected president on June 27th 2004 and was re-elected on February 3rd 2008 Headed by the prime minister and responsible to parliament. A coalition led by Mirko Cvetkovic of the DS took office on July 7th 2008 Government: For a European Serbia (ZES), a pro-EU bloc led by the DS, including the G17 Plus and smaller parties; a bloc comprising the Socialist Party of Serbia (SPS), the Party of United Pensioners of Serbia (PUPS) and United Serbia (JS); and several members of parliament representing minorities. Opposition: Serbian Radical Party (SRS); Democratic Party of Serbia (DSS); Liberal Democratic Party (LDP); Serbian Progressive Party (SNS) Prime minister First deputy prime minister & minister of interior Deputy prime minister for European integration & minister of science & technological development Deputy prime minister & minister of economy & regional development Deputy prime minister Key ministers Agriculture, forestry & water management Defence Education Energy & mining Finance Foreign affairs Health Infrastructure Justice Kosovo & Metohija Labour & social policy Public administration & local self-government Telecommunications & information society Trade & services Slavica Djukic-Dejanovic (SPS) Dejan Soskic
a Mr Ljajic is the leader of the Sandzak Democratic Party (SDP), a small ally of the DS.
Mirko Cvetkovic (ZES-DS) Ivica Dacic (SPS)
Bozidar Djelic (ZES-DS) Mladjan Dinkic (ZES-G17 Plus) Jovan Krkobabic (PUPS) Sasa Dragin (ZES-DS) Dragan Sutanovac (ZES-DS) Zarko Obradovic (SPS) Petar Skundric (SPS) Diana Dragutinovic (ZES) Vuk Jeremic (ZES-DS) Tomica Milosavljevic (ZES-G17 Plus) Milutin Mrkonjic (SPS) Snezana Malovic (ZES) Goran Bogdanovic (ZES-DS) Rasim Ljajic (SDP)a Milan Markovic (ZES-DS) Jasna Matic (ZES-G17 Plus) Slobodan Milosavljevic (ZES-DS)
Parliamentary speaker Central bank governor
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Serbia February 2011

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Country Report

Outlook for 2011-15

Monthly review: February 2011

Data and charts

Editors: Editorial closing date: All queries: Next report:

Country Report February 2011

The Economist Intelligence Unit Limited 2011

Main road International boundary Main airport

Capital Major town

Loznica Valjevo Velika Plana

BOSNIA AND HERCEGOVINA

Kragujevac Cacak Kraljevo Zaj Zajecar ecar

Dakovica Dakovica Presevo Presevo Prizren

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Outlook for 2011-15

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Leaked NATO reports appear to corroborate Mr Marty's claims

Banking on the KLA

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Economic policy outlook

0.7 83.79 1.20

2.2 83.98 1.18

4.1 84.15 1.16

5.1 81.65 1.17

Country Report February 2011

The Economist Intelligence Unit Limited 2011

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Country Report February 2011

The Economist Intelligence Unit Limited 2011

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.

Country Report February 2011

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Monthly review: February 2011

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Global barometer of hope and despair, 2011

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Republican budget, 2010

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Comparative price levels

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Comparative price levels, 2009

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2005 63.2 35.8 59.1 41.6 43.8 42.0 38.8

2006 65.3 36.5 57.5 41.6 44.7 40.8 40.9

2007 64.4 36.8 60.5 42.6 45.9 42.8 47.1

2008 69.0 39.0 61.4 43.2 47.2 45.7 50.4

2009 68.8 39.5 56.4 43.5 51.0 47.8 48.0

Country Report February 2011

The Economist Intelligence Unit Limited 2011

GDP per head versus comparative price levels, 2009