In times of crisis – investors are hesitant

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Economic growth will be slower due to higher energy costs, reduced exports and more difficult imports of some products such as raw materials for the ironworks

The entire European economy, including ours, is endangered by the conflict in Ukraine. The crisis will have consequences for the local economy, not only because of the economic cooperation with the two countries in conflict and their neighbors, but also because of the damage that the EU, as our main foreign trade partner, will have.

The list of troubles that will hit us is only getting more complicated. Experts list weaker economic growth, poorer exports, possibly lower inflows of foreign direct investment (FDI), high energy prices that could cause public companies to run into difficulties, the fact that “Zelezara Smederevo” buys semi-finished iron products in Ukrain. There is also the aspect that Serbia has not joined the economic sanctions against Russia, so the question arises whether it can take revenge on us indirectly, through the economy.

Milojko Arsić, a professor at the Faculty of Economics in Belgrade, does not believe that international financial institutions will reduce their exposure to us. For now, something like that has not been announced, but in his opinion, it is possible to slow down the approval of some loans or make it conditional. Also, a smaller inflow of foreign direct investment is possible, especially if foreign companies receive a message from their governments or the EU to refrain from further investment, which is also not indicated at the moment. He believes that GDP growth will certainly be slower due to higher energy costs, reduced exports and more difficult imports of some products such as raw materials for the ironworks. The main danger for Serbia is the growth of energy prices, then the impossibility of exporting to Russia, Ukraine, Belarus, the difficult transport of bulky goods such as grain across the Black Sea.

“As far as the financial stability of the country is concerned, we have very high foreign exchange reserves and they can amortize for a while the eventual reduction of FDI and the worsening of the ratio of import and export prices. We constantly have a high deficit in trade with the world and it is financed by foreign direct investments and government borrowing. We will certainly have to borrow abroad for the budget deficit and obligations due this year, although it has been said that we will not. It is about large funds of four, five billion euros, and it is impossible to collect them only on the domestic market “, says Arsić.

He notes that we have an additional problem due to the difficulties in the functioning of EPS, the accumulations have been emptied and if the conflict lasts longer, the question of import prices is raised. We pay a high price for gas for the missing quantities, because we did not enter the winter with stocks, which is largely our responsibility because we did not import when the prices were favorable. First, gas supplies were used up to ensure production in EPS, and then due to a breakdown in EPS.

“High energy prices can lead to losses in the public companies” Srbijagas “and EPS. “Srbijagas” imports at high prices, and sells gas to households at low prices. The consequence is the loss of the company. Similarly, EPS imports electricity at high prices, and those losses will not be taken over by the state because it is not a physical being, but citizens not as consumers, but as taxpayers. That is how it is cheaper in all companies that sell goods than they buy them. The state has already given guarantees of 200 million euros to “Srbijagas” at the beginning of the year. So, the state has taken on an indirect obligation to pay that amount, if the company cannot, “says Arsić.

Ivan Nikolic, director of scientific research development at the Institute of Economics, says events have escalated rapidly and that the answer to the question of what the consequences will be depends on the length of the conflict.

“If the crisis lasts longer, it will be a consequence of the balance of payments.” Energy is more expensive and the disorder is already spilling over to primary products such as food. We are not dependent on food imports, but we are dependent on the import of some metals. Imports can become more expensive, and we may have problems with the sale of certain products, such as fruit for Russia. Tires also have a significant share. The business of “Zelezara Smederevo” may be endangered, because the concentrates of iron and copper come from Ukraine and Russia. The question is how efficiently the foreign trade exchange with Russia will be paid. In the long run, our exports will have to adjust due to the fall of the ruble, because we are becoming uncompetitive due to the lower standards of the citizens there, “Nikolic explains.

In his opinion, the negative effects on Europe are more significant, among other things, stopping the production of cars from some manufacturers, because they received spare parts from Ukraine. It has already been hinted that Europe will pay a high price for conflicts and, given how important they are to us, the stronger effect on us will be through Europe, than our direct connection to the conflict. He adds that investors do not like conflicts, uncertainty, and that can be seen in the reluctance to invest in government bonds, Politika writes.