(Adds detail, comments, background, market reaction)
By Gordana Filipovic and Ivana Sekularac
BELGRADE, Dec 30 (Reuters) - Serbia's economy posted slower than expected growth in the third quarter, official statistics showed on Tuesday, fuelling expectations of a prompt monetary policy easing to spur the growth in 2009.
The latest figures also showed end-of-year headline inflation eased to 6.8 percent, its lowest in 16 months, and a sharp decline in monthly exports and imports as the global financial crisis came visiting. [nLU192036] The economy grew by 4.9 percent year-on-year between July and September, slower than analysts' and official expectations for year-on-year growth of around 7 percent.
Full-year 2008 growth was seen at 6.1 percent, down from 7.1 percent in 2007. 2009 growth should be 3.5 percent.
Earlier in the day, neighbouring Croatia reported growth slowing to 1.6 percent in the third quarter, with annual growth likely to ease to 2.0 percent, below the official 3.0-3.5 percent estimate. Croatia's GDP rose by 5.6 percent in 2007.
"(Serbia's) lower GDP growth comes as a result of lower tax collection," Dusko Vasiljevic of the CEVES think-tank said. "Excluding the tax component, the gross added value stood at a decent 6.1 percent."
The third quarter expansion was led by transport and financial services, which posted 13.9 and 13.6 percent growth respectively, the official figures showed. But retail trade and construction no longer boasted double-digit growth rates. Another report, on Serbia's January-November foreign trade, showed monthly exports and imports falling, as the economy weakens and global demand for Serbia's key export products -- base metals, iron and steel -- melts down.
But the trade gap of $11.2 billion -- the key component in the current account deficit of an estimated 18.5 percent of GDP this year -- was still disturbingly high, Vasiljevic said.
FALLING INFLATION
Jurij Bajec, the economic adviser to the Serbian Prime Minister, said the whole-year growth of an estimated 6.1 percent reflected a well-performing economy in the first half of 2008.
But the inflation figure, below an 8-12 percent official forecast, came as surprise.
"This is an exceptionally low inflation (figure) and the central bank would have to consider a serious cut in its repo rate and see what to do with the reserve requirements to help the economy overcome liquidity problems," Bajec said. A 100-200 basis point rate cut would change little, however.
Croatia's central bank has said it could further cut the reserve requirements and even use currency reserves if capital inflows stop and financing abroad becomes more difficult.
Serbia's central bank has been reluctant to inject liquidity, fearing that the money could be used to finance consumption.
Earlier this month, it left its key policy rate, the
two-week repo
The central bank on Tuesday sold 72.7 million euros to meet strong demand for hard currencies and try to keep the dinar away from 89.00/euro ahead of New Year and Orthodox Christmas holidays. But banks reported late deals at 89.20/euro.
"It is so interesting that inflation has been falling despite the dinar depreciation, which shows that the impact of the dinar movements on prices has grown weaker," Vasiljevic said, adding that time was ripe for a rate cut.
In 2009, Serbia will switch to targeting the consumer price inflation, a wider, EU-standardised measure, rather than core inflation based on a narrower retail price index. The government and the central bank target 2009 CPI in a 6-10 percent band. (Writing by Gordana Filipovic; Editing by Tony Austin)