Sanctions on Serbian NIS could affect country’s economic performance

On the radar

• In Serbia, US sanctions against Serbian oil company NIS are in spotlight (got delayed from October 1 by at least a week).
• In Slovakia producer prices increased by 0.8% y/y in August.
• Today, in Slovenia, retail sales growth will be released.

Economic developments

Today we zoom in on Serbia and the topic of sanctions on Serbian oil company NIS. US sanctions were initially scheduled to begin on October 1, but got delayed by at least a week. If a new agreement is not reached shortly, however, sanctions would affect economic performance, fiscal stance and possibly monetary policy directions, adding to the rising risk profile of Serbia, possibly endangering credit rating and outlook. While Serbia has enough fuel reserves for about two months, the enforcement of sanctions brings uncertainty to the market. Possible energy shortages and rising fuel prices would contribute to a slowdown in economic activity, particularly in transportation, manufacturing, and services, where higher costs reduce productivity. Central bank could be forced to react accordingly. In response to the economic challenges, the Serbian government would have to intervene in the energy sector, providing financial support to NIS. Regarding fiscal stance, the materialization of the scenario of sanctions against Serbia oil company NIS would increase the strain on public finances and raise national debt. Moreover, the government will face additional budgetary pressures, not just from the loss of important NIS budget contributions, but also from the need to support industries most affected by energy disruptions.

Market movements

The CEE currencies hold stable in a week-to-week assessment despite intra-week volatility while the bond market performance was a mixed bag. This week, only Romania plans the issuance of government bonds. As for other important news in the upcoming week, Serbia’s rating decision on Friday will be a key event for local markets, as we see a probability of a negative outlook change. The uncertainty around US sanctions against NIS only adds to the rising risk profile of Serbia. The issue of importing oil and gas from Russia is also in spotlight in Hungary and Slovakia.

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