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Inflation will not slow down this year, but maybe only next year - Serbia Business

Inflation will not slow down this year, but maybe only next year

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Inflation will not slow down this year, but maybe only next year. According to H1 interlocutors Milojko Arsić and Mihailo Gajić, high indebtedness, rehabilitation of financial problems – primarily due to indebtedness of Elektroprivreda and Srbijagas, but also normalization of electricity production, are the first tasks that the new government will have to “tackle”. During that time, the increase in prices affects citizens with lower and fixed incomes, so those who have not agreed on a salary increase of 10% by the beginning of the year – already have a really lower salary than just a few months ago. Every household in Serbia has its own personal inflation, said the guests of Infobiz.

Although votes are still being collected and post-election combinatorics is taking place, the elections have not postponed economic problems. The strongest blow to the crisis and inflation is undoubtedly yet to come. The state of the Serbian economy awaits him. What is the room for maneuver of the future government? Professor of the Faculty of Economics Milojko Arsić and economist Mihailo Gajić, program director of the LIBEK research unit for Infobiz, spoke about the biggest economic challenges in the coming months.

“The economy had problems even before the war in Ukraine – inflation in the world begins in the second quarter of 2021, the consequences are very strong monetary and fiscal expansion applied around the world,” said Milojko Arsic, professor at the Faculty of Economics in Belgrade.

He points out that Serbia also participated in that.

“We were in the lead in terms of the amount of money we issued and the amount of aid to citizens and the economy,” says Arsić.

He adds that, on the one hand, it affected the recovery of citizens and the economy, but, on the other hand, it affected the relatively high growth of prices, ie inflation, which was relatively high at the end of 2021, “points out Professor Arsić.

The first urgent task of the new government will be to normalize the production of electricity in EPS, to prepare well for the next season. It is also very important to fix the financial problems that have manifested themselves through the great growth of indebtedness in recent months, which refers to EPS and Srbijagas. He points out that Telecom is also very indebted.

Economist Mihailo Gajić states that inflation does not affect us all equally, but depending on how much our income and expenses are and what we spend our money on.

“Every household has its own personal inflation,” Gajic points out.

When, as he adds, we look at the sectors measured by statistics, we see that the growth of energy prices – electricity, fuel – is not the same as the growth of food prices, which was much higher.

In the average household in Serbia, most of the money goes to food.

“People with lower incomes and fixed incomes are more affected by exacerbations – if you live on pensions, social security incomes, budget salaries, or work in a workplace where there is no wage growth that would accompany rising prices, it means that inflation means big for you A drop in purchasing power. Anyone who has not agreed on a 10 percent salary increase since the New Year has a salary in real terms lower than it was only a few months ago, “explains Mihailo Gajic.

How long will the crisis last? And inflation?

The interlocutors of Infobiz agree that it is difficult to predict how long the crisis will last and to what level inflation will go, and when its growth will stop.

“A few months ago, the predictions were that inflation would decrease, so that it would return to three percent plus / minus 1.5 percent in the fall. That will probably be postponed until the beginning of next year,” Gajic says.

Milojko Arsić adds that inflation has an unfavorable effect on the state as well.

Due to the large change in the price ratio, the price of input will jump for some, which makes some businesses unprofitable, there is a slowdown, reduction, stagnation in some economic activities, and in extreme cases, bankruptcy. they are sold to them, which negatively affects economic activity “, states Arsić.

Double-digit inflation

He points out that inflation of ten percent certainly has a negative impact on economic activity. And that is the inflation that, he says, we expect.

“The real value of state expenditures is decreasing, and revenues are growing, so tax revenues are higher – that may seem favorable at first glance, but inflation devalues ​​that value of revenues,” explains Arsić.

He reminds that the export to Russia has been reduced – where we exported in the amount of two percent of GDP. European economies are slowing down, and Serbia is adopting measures in the field of energy that directly affect the reduction of state revenues – such as reducing excise taxes by 20 percent, which will lead to domestic revenues.

Limited prices, says Arsić, can be applied for some time to come, especially in the field of energy, which is already creating large losses for producers.

“This means that citizens will pay these obligations, because Srbijagas sells part of the gas at a lower price than it buys, and it must pay it to the Russians. EPS takes loans that it will not be able to repay, which will increase public debt and affect the fiscal deficit.” , says Professor Arsić.

One of the consequences is that the state will have to rebalance the budget and adjust it to lower revenues and higher expenditures, which will be higher due to the elections. He also adds that some spending was not included – help for young people, measures against birth rates …

Serbia as a drunken sailor

Regarding the public debt of Serbia, says Mihailo Gajić, it is not very close to the “magic limit of 60 percent of GDP”, but there were large issues during 2020.

“That money was big and indiscriminate. Other countries had similar aid packages, but they spent less money where it was necessary – Serbia borrowed and distributed money in sacks, like a drunken sailor,” Gajic said, adding that everything will be paid for – from new borrowing.

We can expect, he says – global interest rate growth, which will increase Serbia’s public debt.

“Serbia must borrow 3.5 billion euros in order to refinance. One percent higher interest rate means 35 million euros more expenditures – only for the payment of the existing debt,” warns Mihailo Gajic, N1 writes.