Fitch agency: Student protests not affecting economic policy

Fitch Ratings said they expect continuity in Serbia’s policy mix to preserve the sovereign credit improvements reflected in the Positive Outlook on Serbia’s ‘BB+’ rating, reported Danas.

“Serbia’s flash 1Q25 GDP estimate, showing a 2.0 percent increase from last year, highlights a marked deceleration in growth that had been signaled by high-frequency indicators. These have shown a slowdown of industrial production, stabilization of retail trade and weakening of economic sentiment, particularly in the services sector, this year,” the agency said in its report.

It noted that net trade was a factor in slower 1Q25 growth, as exports fell by 1.6 percent in US dollar terms, while imports increased by 8.7 percent.

However, it added that this is unlikely to fully explain the weaker growth momentum.

“The breakdown of first-quarter GDP contributors, when available in early June, should help show how far the trends in the high-frequency data may reflect domestic rather than global developments,” said Fitch.

The agency recalled that it had already reduced Serbia’s 2025 real GDP growth forecasts to 3.8 percent in March from 4.2 percent at its most recent rating review in January due to the deteriorating external environment.

If confirmed, the 1Q25 estimate would suggest further risks to the forecast amid the severe escalation in the global trade war materially weakening global and eurozone economic prospects.

Serbia’s external buffers remain strong with international reserves at 31.6 billion euro, said Fitch.

However, it added, reserves declined by 894 million euro in 1Q25 with net sales by the National Bank of Serbia of 955 million euro due to increased foreign-currency demand due to a combination of domestic and external uncertainties, as well as seasonal pressures on the Serbian dinar.

New Government, student protests, and potential elections

Fitch’s report noted that on April 16, Serbia’s National Assembly approved Djuro Macut as the new prime minister. His predecessor, Milos Vucevic, resigned in January following public outrage over the collapse of a train station canopy in Novi Sad last year, which resulted in 16 fatalities, the agency said.

“The protests have lasted longer and been more widespread than we anticipated and relative to previous anti-government demonstrations. But they remain primarily student-led and are focused on perceived centralisation of power and corruption rather than economic policy, meaning they are currently unlikely to lead to any significant shift, in our view,” stressed Fitch.

It noted that the next scheduled parliamentary and presidential elections are due in 2027, but snap elections cannot be ruled out, and that President Aleksandar Vucic recently suggested that the polls may be brought forward to 2026.

“Macut, a doctor and academic with no prior political experience, was nominated by Vucic, and the composition of the new government points strongly to macroeconomy policy continuity, with several ministers, including those in charge of economic policy, reappointed to their previous roles,” says the report.

The advent of the new government is consistent with Fitch’s view at its rating review in January that the impact of the current political situation on the macroeconomic policy mix should be limited.

The policy mix includes a record of prudent fiscal management and has supported robust investment-led economic growth, boosted international reserves and strengthened GDP per capita against the ‘BB’ category median.

Key policies include the ‘Leap into the Future – Serbia Expo 2027’ plan to promote investment-led growth, and fiscal policy anchored on an IMF programme that supports further debt reduction over the medium term even amid increased capex. Solid growth supported an almost 80 percent increase in GDP per capita in US dollar terms between 2018 and 2024.