When Serbia’s Finance Minister Siniša Mali announced earlier this year that the country’s gross domestic product (GDP) could reach 100 billion euros by the end of 2027, he likely didn’t anticipate a surprising boost in the figures. It turns out that last year’s GDP was not 69 billion euros, as previously estimated, but actually 75 billion euros—an 8% increase.
The Republic Statistical Office (RZS) recently released the final calculations for the 2023 GDP, stating it amounted to 8,817.7 billion dinars instead of the previously estimated 8,150.5 billion dinars. Using an exchange rate of 117.25 dinars to the euro, this translates to the aforementioned GDP figures.
However, a more frequently referenced indicator is the real GDP growth rate. Until now, various institutions—including the RZS, the National Bank of Serbia (NBS), the Finance Ministry, the World Bank, and the IMF—calculated a real economic growth rate of 2.5%, consistent with the previous year’s figure. While this growth could be described as moderate, even anemic given the level of development of the Serbian economy, the newly reported growth of 3.8% represents a significant increase.
According to the RZS, the primary reason for the revision of the earlier growth rate from 2.5% to 3.8% was the updated data sources, particularly annual financial reports from companies and statistical surveys indicating better economic performance than previously estimated through quarterly assessments based on short-term indicators.
On the expenditure side, the largest difference was found in the calculation of investments. The growth rate for gross investments in fixed assets was revised upward from 3.9% to 9.7%, based on data from an annual investment survey conducted by the RZS. Changes were also made in net exports, with the export growth rate adjusted from 2.4% to 2.7%, while the import growth rate was revised downward from -1.1% to -1.6%, based on updated export and import data.
Regarding the production side of GDP, sectors that demonstrated stronger economic performance according to annual financial reports contributed significantly to the revised growth rates. This primarily includes wholesale and retail trade, motor vehicle and motorcycle repairs, transportation and storage, as well as accommodation and food services, where the real growth rate was adjusted from 0.4% to 6.2%. Additionally, the real growth rate for the information and communication sector was raised from 8% to 14.1%.
A much higher-than-expected growth was also recorded in the sector of professional, scientific, and technical activities, as well as administrative and support service activities, with the growth rate corrected from 4.7% to 11.7%. Milojko Arsić, a professor at the Faculty of Economics in Belgrade, suggests that such a substantial adjustment indicates issues with the short-term indicators used by statistics.
“If we assume that the correction is accurate, it suggests that short-term indicators are unreliable due to the significant adjustment, and these indicators need improvement,” notes Arsić.
Milorad Filipović, also a professor at the Faculty of Economics in Belgrade, explains that GDP is calculated based on gross value added (GVA), which is derived from invoices issued between businesses. “There can be significant inflation in prices and intermediary commissions, which artificially inflate GDP,” he explains.
Filipović also remarks that the adjustment in investment growth is not surprising, given large investments in projects like the EXPO, the National Stadium, and road construction.
He further emphasizes that the usability of GDP as a measure of development is often questioned in academic literature. “GDP is like a bikini; it shows everything but what’s most important. It includes contributions from corruption, criminal activities, and even environmental destruction, which all add to GDP. However, if we accounted for the negative impacts of these phenomena, GDP would be lower. Therefore, many prefer the Human Development Index (HDI), because what good is GDP growth if, for example, employment decreases, the trade balance worsens, or public health suffers?” Filipović adds, noting that over the past decade, the distribution of GDP has worsened, leading to increased inequality.
This unexpected GDP growth carries other implications as well. For instance, all economic indicators relative to GDP decrease. The public debt of 36.1 billion euros at the end of last year was 52% of GDP; following the new calculations, it drops to 48%. Similarly, the budget deficit expressed as a percentage of GDP technically decreases.
Additionally, according to the budget system law, the wage fund for public sector employees is limited to 10% of GDP. With a higher GDP, there’s more room for salary increases, and the same applies to pensions.
Arsić notes that this revision, resulting in a higher GDP, clarifies some previously puzzling phenomena. “For example, productivity has increased slightly in previous years, but this wasn’t reflected in a significant decrease in the economy’s competitiveness. A higher GDP could explain that. Furthermore, with a previously underestimated GDP, employment growth becomes clearer,” Arsić adds.
The Finance Ministry recently increased its GDP growth estimate for this year from 3.5% to 3.8%. On Thursday, a mission from the International Monetary Fund (IMF) will arrive in Serbia, making it interesting to see how these new GDP figures will affect compliance with conditions under the stand-by arrangement.
