The National Bank of Serbia (NBS) estimates that construction, which has been growing faster than the rest of the economy for several years, may reach a share of seven percent of GDP in the medium term, which is one percent more than in previous projections.
NBS analysts came to this conclusion by analyzing the most significant investments in infrastructure. First of all, the construction of the Belgrade metro, communal infrastructure, railways Novi Sad-Subotica and Belgrade-Nis-Skopje, highways and fast roads. They estimated the total value of all projects at around 25 billion euros, and there is certainly a possibility that this amount will be even higher, due to the announced projects in the energy sector.
What contributed to the growth
The total added value of all these projects, according to their estimates, is close to five billion euros and is spread over a period of ten years, so that each year they predict an average of about 500 million euros of added value in construction above what they expected in previous projections.
The August inflation report of the National Bank of Serbia emphasized that the construction sector is growing faster than the rest of the economy since 2014, as illustrated by data on gross value added, which doubled from 2014 to 2019, with an average annual growth of more than 10 percent in GDP increased from three percent in 2013 to 5.7 percent in 2019 and maintained at a similar level in 2020.
The growth of construction was directly contributed to by the increase in capital expenditures of the state. Allocations in 2020 were 3.5 times higher than in 2013, and this growth was primarily based on the intensive construction of infrastructure facilities. Significant improvement of the business environment due to the achieved and preserved macroeconomic stability also contributed to the development of construction, Politika writes.
According to the latest available data on the technical structure of fixed investments, the share of construction works in total fixed investments in 2019 was 48.1 percent, while in 2013, when the level of investments was twice lower, that share was 38.8 percent.
Impact on other sectors of the economy
This increase in the share of investments directed to construction is largely due to the simplified procedure for electronic issuance of construction permits. Thus, for example, the average monthly number of issued permits increased from 627 in 2013 to 1,885 in 2020, whereby the projected value of works based on issued permits was three times higher than in 2013. Thanks to that, in the observed period the activity in housing construction, where the number of completed apartments increased from 13,500 in 2013 to 25,300 in 2020, and the area of completed apartments in the same period increased by 118 percent.
“Data on intermediate consumption indicate that construction relies heavily on other sectors of the economy, thus increasing the impact of construction on economic activity. In particular, the amount of intermediate consumption in the construction sector is three times higher than the gross value added, with almost half of the intermediate consumption in construction related to the absorption of values created in other sectors. With this in mind, it can be concluded that the impact of construction on other sectors is 50 percent higher than the gross value added created in this sector, with the most pronounced impact on certain activities within the manufacturing industry (production of construction materials, base metals, metal products and electrical equipment), as well as the trade sector and certain service activities (architectural, engineering and other professional activities), and to a lesser extent the mining, transport and catering sectors,” the inflation report said.
NBS analysts estimate that faster economic growth resulting from investment growth will not lead to higher inflationary pressures in the medium term, given that increased investment activity also affects higher production potential, so that the production gap would not close faster.
In addition, it is possible to reduce inflationary pressures, given that improved quality of infrastructure could reduce the operating costs of the economy, Politika reports.
