Projections of the development of Serbia until 2027

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The International Monetary Fund projects Serbia’s growth to 3.5 percent this year and 2.7 percent next year, which, given the risks of recession around the world, is a relatively good forecast.

In the period 2000-2022. our country achieved an average economic growth of 3.6%, and domestic GDP cumulatively increased by 116%. These are the author’s calculations based on the official data of the Republic Institute of Statistics, i.e. the International Monetary Fund, which were published on October 11, 2022.

Of course, the key question is how our country is positioned among the countries with which it makes sense to compare (economic growth by the nature of things is almost twice as fast as that in the West, due to their higher base), namely the former socialist countries of Europe. The following analysis included all 20 countries of Central and Eastern Europe that had some form of socialist system until the end of the 1980s.

The conclusions we reached are relatively satisfactory when it comes to the performance of the Serbian economy. Out of the twenty former socialist countries, in terms of GDP growth rate in the observed period, Serbia is in the first quarter (more precisely, it shares 5th place with Poland) and is significantly above the unweighted average for all observed countries.

But, if we look at the entire period of the so-called transition (since 1991), the situation is expectedly worse, since the average growth rate in that entire period is only one percent (twice lower than the average for the observed 20 countries), and the cumulative increase in GDP of Serbia is a modest 36% (1991-2022 ). Of course, the biggest part of the explanation lies in the “free fall” of the domestic economy in the early 1990s, but we are not an exception in this regard, since a significant number of observed countries had a strong transitional recession.

However, data from the famous Madison database, which incorporates purchasing power (which fell more slowly in the 1990s and grew faster during the years of this century, as indicated by the rapid growth of wages in the last twenty years, which at the beginning of the next year could be three on average times more than they were two decades ago, expressed in euros), show that the cumulative increase in the national income of Serbia from 1991 to 2022 is 62% (we also included IMF data for 2019-22 in the analysis). Otherwise, data from the same source for the period of 2000 also indicate a significantly more favorable economic picture of our country. Namely, this measurement indicates that the total production (GDP) increased almost two and a half times (more precisely, by 149.1%).

These countries started market reforms as early as 1990 and achieved progress relatively quickly, which is reflected in the significant growth of their GDP, but also in other important indicators such as average net wages, which in most of these countries are between 900 and 1,100 euros. For Russia, the critical point is the deep crisis of 1998, after which a strong recovery began, associated with the growth of energy prices, but which was interrupted several times (2008-09, 2014-15, 2020, and finally 2022). Bulgaria and Romania are somewhat slower in the process of transition, but in the second part of the nineties some progress was achieved. Ukraine and Moldova are specific cases due to the so-called reform fatigue and wars, while Belarus retained elements of the old system.

Transition speed

The countries of the so-called of the Western Balkans, the so-called transition process, which had a negative impact on the cumulative inflow of foreign capital, consequently low involvement in global supply chains, and a low level of integration into the international economy (which is best seen through the very low level of exports per capita of all countries in the region).

Due to international sanctions, the collapse of the SFRY market, and the de facto loss of the possibility of placing on the undemanding markets of Eastern Europe, the domestic economy faced a drastic economic decline from 1990 and ending with the end of 1993, when the GDP level was almost halved. At the same time, the transition economies of Central Europe, after not nearly as dramatic a recession in the first years of the 1990s, showed solid growth (of 3.2%) in the period from 1995 to 2000. At the same time, Serbia recorded modest economic growth in same period (1.3% on average), from a very low base due to the previous dramatic decline in economic activity.

After that, the Serbian economy achieved a solid average growth in the period 2000-2022. of 3.6%, which is higher than the unweighted average for the 20 observed countries (which is three percent). The situation is similar when we include in the analysis the growth rates forecasted by the IMF for the period until 2027. Namely, the average economic growth of Serbia in the first 27 years of this century should amount to 3.6%, which is half a percentage point more than average for the observed 20 countries in transition. By the way, even in the period 2010-2022, when global growth slowed down, Serbia’s economy also increased its GDP faster on average than the observed 20 countries on average (growing 2.4% versus 2.1%).

Optimistic forecasts

The results are therefore not discouraging, although the critical tone of the public leads to such thoughts. And the prospects, it seems, are not bad. Namely, in the new autumn World Economic Outlook , the IMF projects Serbia’s growth to 3.5% this year and 2.7% next year, which, considering the risks of recession around the world, was relatively good result.

The IMF predicts that Serbian GDP will increase relatively quickly after 2023 (four percent on average). Thus, GDP per inhabitant will increase from an estimated 9.2 thousand dollars this year to 14.5 thousand current dollars in 2027, while GDP per purchasing power will increase from 24 thousand dollars to 33,000 dollars in 2027.

The IMF believes that the rate of investment, which is the key generator of economic growth, as a share of GDP, will be relatively stable (about a satisfactory 26%) during the observed five-year period. Forecasts for the fiscal deficit (consolidated public revenues minus consolidated public expenditures, i.e. public spending) indicate that it will fall to 1.4% of GDP next year. Therefore, it is not a surprise that the public debt trend is predicted to decrease throughout the period (to a modest 41.4% of GDP in 2027).

The IMF estimates that the unemployment rate will decrease slightly, reaching 8.7% in 2027. Serbia’s current account deficit, after a high 8.4% of GDP this year, will practically constantly decrease in the next five years, dropping to a satisfactory 4. 8% of GDP at the end of the observed period.

In general, the IMF report gives cause for optimism. However, a dose of caution is not out of place, bearing in mind that the forecasts of this international organization are generally optimistic. After all, imagine the IMF forecasting a crisis – it would almost certainly happen, taking into account the influence of this financial institution on the behavior of market actors, Standard writes.

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