In addition to estimates that inflation will slow down in the first quarter of 2023, research shows that European manufacturers have so far passed on 34 percent of the total increased procurement prices to end customers, and that in the first quarter of 2023, the transfer to customers will reach 50 percent. This will further increase the prices of final products. But the company’s profit margins will also be smaller, because it is not possible to increase the price of products indefinitely when demand falls. Many companies will operate without profit in order to preserve production, and some will redirect the money planned for investments to the operational part of the business in order to survive. This is how the economy in Europe and in Serbia will work this year.
Bojan Stanić, deputy director of the Sector for Strategic Analysis of the Serbian Chamber of Commerce, says that companies in Serbia will maintain their operations in 2023 if there is no deeper crisis in the European Union. 75 percent of our firms did not have a liquidity problem last year and most of them expect it to continue this year as well.
– Regardless of the fact that they are liquid and that they have reduced profits, most companies have transferred part of the costs to the end consumer. In Serbia, 80 percent of companies have increased the prices of final products and services – says Stanić.
Our interlocutor points to a significantly faster slowdown of the European economy and a drop in international demand for our products. At home, companies face the loss of purchasing power of the population, which raises the question of how they will be able to implement their business plans and how much they will fail compared to previous years.
According to his assessment, inflationary pressures will be felt throughout the year and this means that product prices will rise. Inflation will start to fall and it is expected to be eight percent, but as long as it is above the National Bank of Serbia’s framework of three percent, plus or minus one and a half percentage points, it means that we will continue to see the population’s loss of purchasing power. But will inflation appear in the second half of the year.
Stanić points out that our economy is threatened by a negative demographic trend, i.e. a lack of labor force, and if the private sector does not keep up with the growth of inflation through wage growth, people will go abroad. Thus, they lose experts and the potential for recovery that will follow.
– Employment is preserved in 2022, the unemployment rate is reduced to nine percent. Our businessmen know that they have to protect workers, but the fact is that they do not have that much space to increase earnings, except in industries that have jumped, such as the IT sector. Employees in industrial production, which has a modest growth of 1.7 percent, can hardly expect a higher increase in wages. But that will happen at the expense of investments – explains Stanić. He adds that there is less room for lowering tax burdens because the budget is under great pressure, and on the other hand, borrowing costs are rising.
It would be ideal, he says, to maintain a positive growth rate, but the economy has come to terms with the fact that 2023 has been lost in terms of growth and development. It is important not to lose potential and not to get into a problem in the long term.
Toplica Spasojević, president of ITM, believes that companies that have a strong position in the market and inelastic demand for products will have profits. Companies that suffer a lot of competition from abroad, even from domestic producers, will have to come to terms with the fact that they will work without profit, or even in the red, until these difficult times pass.
– The situation with energy products has been stabilized, thanks to the policies of the states, including ours. In the long term, I expect the stabilization of the price of electricity, which is one of the important factors for all economic policies in countries. As for inflation, we have hints that it is slowly slowing down in America and will stabilize, and then in Europe as well. I am not optimistic that this will happen in our country as well – notes Spasojević.
It is a huge problem that the economy will not be able to keep up with increased business costs if it does not raise the prices of its products. The trouble is that our products don’t have that strength of brands. We haven’t invested enough to strengthen the strength of the brand so that consumers can’t live without it. In that case, they could raise the price.
– There is a danger that we will lose workers. The Germans want to receive five to six million workers in the next three to four years. They will even be able to settle in Germany and then look for a job. It will be a big blow to the Balkans – says Spasojević.
Dragoljub Rajić, from the Business Support Network, believes that prices will have to rise, perhaps a little more slowly, because all the raw materials that go into production and transport, unfortunately, continue to rise.
– In December, we surveyed companies from the metal, mechanical, electrical, transport and IT industries and concluded that the price of raw materials rose by 39 percent, and the workload of the business jumped by 29.5 percent in the past year. If we know that inflation is 15 percent, it means that companies will have to level all those costs through prices. Another wave of price increases of 10 to 15 percent awaits us for sure. It is unpopular because all the managers complain that their sales have declined in the past year. They avoid raising prices, but they have nowhere to go – explains Rajić. He notes that banks have increased commissions by 100 percent, and Belgrade has introduced a fee for using sidewalks, which makes doing business more expensive.
He emphasizes that employers will have the cost of adjusting wages because the minimum wage has been increased. In our country, wages are no longer low, a truck driver in Croatia earns 1,100 euros, in our country it is 1,000. A worker on metalworking machines here costs 1,000 euros, the same as in Croatia.
– The economy is worried about what the position of our country will be because we had a case in six companies that they lost contracts worth 40 million euros for this year. The reason for this is the image of Serbia in the last year as a pro-Russian country, and their partners from the EU did not extend their contracts, but instead opted for Bulgarian and Romanian companies. Admittedly, we also had companies that concluded new contracts with European partnersbecause they are like subcontractors in relation to them – says Rajić.