Bi-Weekly Report 1-14 January 2019


End-year headline inflation to decline from a 16-year high of 20.3% y-o-y in 2018 to 14.5% in 2019

The CBRT set to maintain its key policy rate on hold at 24.0%% at least until May, before initiating a new cycle of monetary policy easing

Lending activity (FX-adjusted) slowed significantly in 2018, mainly due to the August currency crisis

Customer deposits (FX-adjusted) decelerated markedly in 2018, hampered by weakening confidence in the domestic economy



The banking sector's bottom line improved further in Q3:18, due to a slowdown in provisioning and, to a lesser extent, higher NII

Profitability to be hit significantly by a controversial tax



The profitability of the banking system improved sharply in Q3:18, mainly on the back of lower provisioning

Stronger pre-provision income is set to sustain profitability in 2019



GDP growth is estimated to have rebounded to a post-global crisis high of 4.3% in FY:18 from 2.0% in FY:17

The IMF Executive Board completed the 1st review of the 30-month (non-financing) PCI

Serbia opened two additional Chapters in EU accession talks



Parliament agreed to change the country's name to the Republic of North Macedonia, paving the way for the start of EU membership talks and joining NATO

Headline inflation decelerated to 0.9% y-o-y at end-2018 from 2.4% at end-2017, mainly due to a significant moderation in core inflation

The unemployment rate is estimated to have declined to a record low of 21.0% in FY:18, underpinned by economic recovery and active labour market policies



The current account deficit is estimated to have continued on its downward trend, for a 4th consecutive year, narrowing to a 12-year low of 6.6% of GDP in FY:18 from 7.5% in FY:17

The current account deficit is set to narrow further this year and be fully covered through large FDIs



End-year headline inflation turned positive for the first time in 6 years in 2018 at 1.7% y-o-y

The current account deficit narrowed to 1.6% of GDP in 9M:18 from a 3-year high of 2.3% in 9M:17, due to a favourable ship trade balance



External adjustment continued for a 7th consecutive quarter in Q1:18/19, with the 4-quarter rolling current account deficit easing to 2.3% of GDP from a 3½-decade high of 7.2% in Q2:16/17

The capital and financial account balance, excluding IMF support, turned into deficit in Q1:18/19, hindered by the withdrawal of foreign investors from the domestic debt market


Appendix: Financial Markets

Bi-Weekly Report 1-14 January 2019