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Foreign investors are worried about inflation in Serbia

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The investment climate has not improved compared to the previous edition of the White Book. After emerging from the recession caused by the COVID-19 virus pandemic, we entered stagflation, i.e. stagnation and inflation. They say that it is a consequence of the war in Ukraine, but a careful analysis shows that the war is not responsible for all bad things, as assessed in the latest White Book 2023 of the Council of Foreign Investors (FIC), which contains recommendations for improving the business and investment climate in Serbia.

It is also added that inflation in Serbia is primarily a domestic phenomenon caused by the rise in food prices.

On the other hand, Serbia is increasingly dependent on foreign trade, which creates additional risks in a situation when the country is moving away from EU membership.

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The growth of public and foreign direct investments cannot compensate for the decline of private investments. The target share of 25% of total investments in GDP is a distant future, it is stated.
It is true that the country’s credit rating has not deteriorated, but it has not improved either and is still below investment grade. In such circumstances, Serbia’s membership in the EU would significantly help to improve the investment climate. This requires good will on both sides, the report assesses.

What is particularly worrisome is the serious drop in GDP both in the euro zone and in Germany and Italy, which are Serbia’s largest export markets.

The Council of Foreign Investors predicts that there will be a slowdown in economic growth in Serbia next year, but at a slightly higher level than in the EU.

Like the IMF, the Council expects Serbia’s GDP to grow by 2 percent this year, but predicts a growth of only 2.1 percent for the next year, compared to the IMF’s 3 percent.

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The problem is inflation, according to the analysis. Comparing the current situation with the crisis of 2008, the authors estimate that the trajectory of inflation calming will probably look like in the period of 2009-2010. with the fact that they do not anticipate lowering it to the target level of 3% +/- 1.5% in the next two years.

We remind you that inflation was reduced to 8.5 percent in October and according to the new projection of the National Bank of Serbia.

The Council of Foreign Investors believes that both in 2008 and now, the biggest contribution to inflation comes from the prices of raw and processed food. The impact of the increase in energy prices is not negligible, but it is not dominant in Serbia. We must not ignore its influence in the future, especially due to the rise in the price of crude oil and the decrease in its world supply, the White Book states.

Electricity prices will also rise, but not because of external circumstances, but because of the need to introduce additional excise taxes in order to finance the budget deficit.

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