So far, our economy has had a favorable wind in the sails, interest rates have been decreasing, money supply has been large, the inflow of money to Serbia has been significant. Monetary policy was restrictive. It looks like things are about to change, Bosko Zivkovic, a professor at the Faculty of Economics in Belgrade and former chairman of the NBS Board of Governors, told Nova Ekonomija.
There will no longer be such easy conditions on the outside, and they are crucial in determining our monetary policy. This further means that instead of the present inflow of capital, one can expect a diminished inflow of capital or even a sudden halt to the inflow of capital.
Nobody now knows, says Zivkovic, how long the pandemic will last, how economic activity in the eurozone will resume. We are highly dependent on the euro area and it is very important how trade goes, what happens with remittances.
Should pessimistic scenarios develop in the euro area, the main problem becomes how to maintain stability. Our fiscal policy will be expansive, talking about helicopter money, and as an idea this is very dangerous.
Unlike the 2008 crisis, when the problem was on the demand side, there were low wages, a decline in lending activity, poor expectations of why people stopped buying houses, cars, luxury products, now we have a completely different problem, we have a problem that offer stalls.
The real sector is rapidly stopping. All economic policies aimed at boosting demand are mathematically wrong because they operate on the opposite side of the equation. You can throw as much money as you want, but you won’t significantly improve things because production doesn’t work. If ideas to stimulate demand continue globally, it could lead to the phenomenon we saw in the 1980s, inflation and slow growth at the same time, warns Zivkovic, Nova Ekonomija reports.
