BELGRADE – Serbia’s economy grew 8.7 percent year-on-year in the first quarter, Statistics Office data showed yesterday, despite the country’s protracted political crisis after an inconclusive January election. The expansion, fueled by last year’s investment inflows, beat earlier forecasts for growth at around the same level as in the first quarter of 2006, 7.0 percent. In the fourth quarter of 2006, growth slowed to 5.0 percent. According to the 2007 budget, the government expects full-year growth of 5.9 percent, compared to the 5.7 percent posted in 2006. In the first quarter, the biggest growth was registered in the trade sector with 24.1 percent. Transport rose by 19.4 percent, followed by financial mediation which grew by 18.7 percent and construction growth of 16.2 percent. The electricity, gas and water sector registered a drop of 5.6 percent and real estate dropped by 1.4 percent. Demand driven Analysts said first-quarter growth was mainly demand driven, as a result of high wage increases and surging imports. »This growth rate is above all the result of domestic demand,» said Ivan Nikolic of the Economics Institute, adding it would be better to boost growth more through exports. Officials have said first-quarter growth also reflected foreign investment deals clinched in 2006, when Serbia earned a record $4.1 billion in privatization revenue and other investments. Lower inflows This year’s inflows are expected to be lower after investors were spooked by Serbia’s brief tilt to ultranationalism during protracted coalition talks after an inconclusive January 21 election. The new government was finally agreed in mid-May. «This is a delayed positive effect of privatizations in the past years,» said Juri Bajec, professor at Belgrade University’s economics faculty. Bajec also said construction, which grew 16.2 percent in the first quarter this year, was higher than expected because a warm winter meant there was no seasonal disruption. Serbia has been posting healthy growth since the fall of nationalist autocrat Slobodan Milosevic in 2000, ending a decade of wars and isolation. But it still lags behind its neighbors. In 2005 its annual GDP per capita stood at $3,842, compared with $9,471 in fellow ex-Yugoslav state Croatia. Future investment is seen coming mainly from the restructuring and privatization of socialist-era monopolies. Key sectors such as electricity, gas, oil and air transport are still under the control of state-owned companies.