Current macroeconomic data indicate continued gradual recovery of economic activity in Serbia, driven primarily by the recovery of external demand, the National Bank of Serbia (NBS) stated on Wednesday.

Year-on-year growth in retail prices and the cost of living in August 2010 measured 7.9% and 6.3%, respectively, based on which the NBS estimates that the August growth in consumer prices will move around the inflation target set for that month (6.7±2%).

In line with the National Bank of Serbia's expectations, the inflation rate increased in August primarily in response to the rising processed food prices and the absence of the seasonal drop in agricultural product prices, it was said in the statement.

In July 2010, industrial output was 5.1% higher that in the same month a year earlier, while in the first seven months of 2010 it was 4.8% higher than in the same period last year.

Stable growth of industrial production, notably manufacturing, will provide a significant contribution to the expected 1.5% GDP growth in 2010, the NBS said.

Export growth is the key factor of economic recovery - in the first seven months, euro-denominated commodity exports rose 19.6% year-on-year, or 20.8% in July alone.

Owing to the recovery of economic activity, particularly in the sector of industry, euro-denominated commodity imports also recorded year-on-year growth - 5.1% in the first seven months of 2010 and 7.3% in July alone.

Foreign trade deficit is relatively stable at around EUR 400 million per month, around half of it covered by remittances.

Due to persistently weak domestic demand, economic recovery was not accompanied with a major increase in VAT receipts, rising in July 2010 by mere 0.9% in real terms over the same period last year, the statement read.