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A year of great risks for the economic growth of Serbia

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Expectations are that the National Bank of Serbia will continue to increase the reference interest rate by 0.25 percent each, and that it, which is now 5.25 percent, will be six percent in the summer

The fear for Serbia’s economic growth is more than justified – this is the impression of yesterday’s panel discussion “Macroeconomic trends and what awaits us in 2023” organized by Naled. Because global uncertainty and inflation are still present, while interest rates remain relatively high and therefore unstimulating for consumption.

Julija Ustjugova, head of the International Monetary Fund (IMF) office in Serbia, estimated that economic growth will be slower this year compared to last year and that this trend will be confirmed by the IMF’s updated forecasts, which are expected soon. She emphasized that there is extremely high insecurity and it has been like this since the beginning of the war in Ukraine. She reminded that Serbia recently concluded a standby arrangement with this financial organization and that we already took one billion euros in December, as well as that there is an intention to take the rest during this year.

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“We are continuing discussions about it in March.” It seems to me that the financial markets are opening again, so the state will be able to borrow in that way as well”, said Ustyugova. According to her, the “tightening” of fiscal spending will help the monetary authorities, that is, the National Bank, in reducing inflation. She stated that it is important that the resources obtained through fiscal consolidation be directed to investments. Ustyugova reminded that energy is the central theme of the IMF arrangement with Serbia.

The panelists were unanimous in their opinion that the most important thing is how inflation will move. It nominally increases GDP and budget revenues, but decreases investment and consumption. According to their opinion, inflation will be at the level of eight to nine percent this year. Bankers agree that due to higher interest rates and more expensive loans, borrowing will fall, and thus the consumption of citizens. Expectations are that the National Bank of Serbia will continue to increase the reference interest rate by 0.25 percent each, and that it, which is now 5.25 percent, will be six percent in the summer. After that, if inflation starts to decline, it is also possible that our central bank lowers the reference interest rate.

Since the presence of the euro in our economy is large, the moves of the European Central Bank (ECB) affect us a lot. Bankers predict that it will continue to increase the Euribor reference interest rate by 0.5 percent and that it will amount to 3.4 percent in the period June-September. Bankers also expect the exchange rate to remain stable.

Dragoslav Veličković, the chief economist at OTP Bank, said that their estimates were that the economic growth last year was around 2.2 percent and that it is predicted that in 2023 it will amount to only one percent.

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“We believe that the central banks of the main economies started late with the tightening of monetary policy and the increase of interest rates, which they did from the middle of last year. The decrease in economic growth was influenced by the increase in energy prices, lower consumption, and high interest rates. During the covid crisis, a lot of money was printed, and now the banks are facing the withdrawal of money from circulation”, said Veličković.

The risk to economic growth is also a decline in agricultural production, that is, climate changes that cause them. That is why he hopes that one out of three agricultural years will be good.

Miloš Zečević, Director of Erste Bank’s asset and liability management sector, said that there will be no economic growth with our largest foreign trade partners. In Germany it will be zero or 0.2 percent, and in Italy, whose problem is a high deficit and public debt, 0.8 percent. It is good that growth of four to 4.5 percent is expected in China, because other world economies depend on it. The shadow is created by the fact that its recovery can increase energy prices. Until recently, it had covid restrictions and lower energy consumption. “We predict that the economic growth in Serbia will be around 1.5 percent, and anything above that would be good,” he said.

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