Boston, MA -- (SBWIRE) -- 05/17/2013 -- BMI has revised down its Serbian vehicle sales growth forecasts for the fourth successive quarter, on the back of the latest industry figures, which suggest that new vehicle demand remains sluggish, and our continued expectations of poor economic growth.

We have again revised down our estimate for Serbian real GDP growth from 0.2% to -1.9 in 2012, as the eurozone crisis weighed on exports and investment, while fiscal consolidation reduced domestic demand in the second half of 2012. Although we expect a modest recovery this year - we forecast GDP growth will rise 1.9% in 2013 - Serbian households are set for another difficult year in 2013, weighed down by fiscal austerity measures and high unemployment. The government's 2013 budget caps increases in public sector wages well below inflation, while it also hikes the VAT rate by two percentage points (see our online service, December 18 2012, 'Still On Track For An IMF Deal'). These factors will curb vehicle sales.

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The country's self-imposed fiscal responsibility rule and the need to comply with IMF conditions will see public spending greatly curtailed and the imposition of a freeze on public salaries and pensions, all of which will hurt the affordability of new cars.

We believe the deal between Serbia and the EU calling for a reduction in custom duties on new imported vehicles from 5% to 2.5%, which came into effect from January 1 2012, is unlikely to bolster consumer confidence and hence vehicle sales in Serbia. We believe that the weak domestic picture, constrained credit and poor export revenue from the crisis-stricken EU - its principle revenue earner - will keep consumer spending curtailed.

We estimate total vehicle sales fell 26% in 2012, to 23,517 units. From 2013 to 2017, we expect vehicle sales to grow just 2% year-on-year (y-o-y) on average. Again, this is slightly lower than last quarter when we pencilled in an annual average sales rise of 3% y-o-y over our five-year forecast period.

According to the Serbian Association of Vehicle Importers, new car sales in Serbia fell 25% in 2012, to 23,993, the lowest since 2001. The body blamed recession and high unemployment.

The country's fast-ageing population - with as much as 21.3% likely be aged over 60 by 2015 - and poor road infrastructure are unlikely to make new vehicle purchases particularly attractive to a significant section of consumers. Moreover, with vehicle loans in Serbia typically having a maturity period of up to 15 years, financing on vehicle purchases will be limited to a smaller consumer base.

Things are slightly more encouraging in terms of production, however. Owing to the small size of its autos industry, Serbia ranks lowest in BMI's Risk-Reward Ratings for the autos industry in Europe, but a slew of recent investments in the country's autos industry - particularly on the supply side - pose significant upside risks to its score.

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