The Ministry of Finance expects slightly faster growth this year than previously estimated, projecting a GDP increase of 3.8% instead of 3.5%. The International Monetary Fund (IMF) has also adjusted its forecast upwards to “about four percent.” However, questions remain about whether a growth model based on state investments, construction, and personal consumption benefits everyone. Economist Nenad Jevtović, director of the Institute for Development and Innovation (IRI), offers insights into this issue.
Jevtović acknowledges that projects like the construction of highways and railways improve the quality of life for many Serbian citizens but also warns against overlooking essential needs. He likens some projects to “placing lions at the gate while there is no sewage in the yard.” While the upward revision of growth forecasts is positive news, he stresses the importance of understanding the foundations of this growth.
“Growth driven by consumption, with exports growing by only 1.1% in real terms in the first quarter of 2024, is not something to celebrate,” Jevtović notes. “Those who are not part of this consumption-driven model, especially citizens with lower incomes, remain disadvantaged. A growth model driven by the manufacturing industry would be more beneficial, spreading growth more evenly across society.”
In 2023, exports significantly contributed to economic growth, but this trend may reverse in 2024. Milan Trajković, an expert at the National Bank of Serbia, explains that imports of consumer goods and equipment will increase to support investment growth, reducing the role of exports as a growth driver. Instead, the investment package “Leap into the Future – EXPO 2027” is expected to drive growth.
Jevtović highlights both the benefits and drawbacks of this investment-driven growth. “High construction growth rates offset weak export performance. The investment package, recognized publicly through EXPO 2027, is the main driver of this growth. It boosts infrastructure and employment in construction, making Belgrade more attractive to people and capital.”
However, he also points out several risks. “This type of growth is insufficiently inclusive and does not improve the standard of living for all citizens. The construction industry often relies on imported labor, leading to capital outflow and benefiting mainly the owners of construction companies. Unlike infrastructure projects like the MiloÅ¡ Veliki highway or the Belgrade-Novi Sad-Subotica high-speed railway, which improve millions of lives, prestige projects may not address the needs of workers living outside Belgrade.”
Additionally, starting production of the electric Panda could boost GDP growth by a whole percentage point, but Jevtović cautions against overestimating its impact. “In 2010, Kragujevac faced high unemployment, and Fiat’s return had a significant effect. Today, the market conditions and consumer preferences are different. The success of the electric Panda depends on market reaction and price competitiveness.”
Jevtović believes there are opportunities to improve Serbia’s growth model, advocating for inclusivity and consideration of regional and demographic factors. “Investments in transport, particularly railway transport, should ensure all citizens have access to quality transportation, not just those on Corridor 10. Investing in education and healthcare, including private capital in healthcare and opening the sector to European clients, can also drive growth.”
He emphasizes the importance of investing in the processing industry, especially the dedicated industry, to boost exports and overall economic growth. “Effective investments in this sector will have a significant medium-term impact, contributing to sustainable and inclusive growth across Serbia.”
Jevtović’s analysis underscores the need for a balanced and inclusive economic growth model that addresses the needs of all citizens while leveraging key investments and industry strengths to ensure long-term prosperity.