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Strong consumption drives growth in Central and Eastern Europe in Q1 2024

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Erste Bank‘s latest analysis reveals that the resurgence of consumption served as a key driver of growth across Central and Eastern Europe during the first quarter of 2024, although investment trends painted a different picture.

The bank anticipates that private consumption will continue to thrive throughout the year, despite a growing inclination towards saving. Household data indicates an intention to bolster savings, with a high probability of increased savings over the next 12 months.

Outlook for Serbia

Following the release of robust GDP growth data for Q1, showing a 4.7 percent increase, Erste Bank has maintained its expectations for Serbian economic growth, revising it upward from 3.6 percent to 3.8 percent.

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“Building on the strong start to the year and anticipating an improved global macro environment and reduced risks in the latter half of 2024, we have adjusted our GDP forecasts for 2024 and 2025 to 3.8 percent and 4 percent, respectively,” states Erste Bank. Overall, they view the risks to their forecasts as balanced.

Consumption is projected to be the primary driver of GDP growth in 2024, supported by disinflation and double-digit wage growth, which will bolster real disposable income. Additionally, improved credit conditions are expected to further bolster consumption throughout the year.

Recent data highlights the fastest growth in private consumption in the past two years, at 4.4 percent annually, attributed to enhanced real wage dynamics. Public consumption also saw an uptick, growing by 3.6 percent annually. When combined, the share of public and private consumption in GDP amounted to 3.4 percent for Q1.

The analysis notes that investments experienced their highest growth in the last three years, primarily driven by robust construction activity, with a 7.3 percent annual increase. This contributed positively to GDP growth by 1.7 percentage points. Additionally, inventory expansion made a positive contribution, adding another 1.3 percentage points to the overall figure.

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However, the only unfavorable data, as expected by bankers, is the sluggish growth in exports, attributed to the challenging situation in European Union countries.

“Once again, external performance exerted pressure on total GDP, with weak growth in exports of goods and services, up by 1.1 percent year-on-year, while imports increased by 3.2 percent year-on-year,” notes the bank’s report.

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