Last year, in 2023, we somehow managed to increase the Gross Domestic Product (GDP) by 2.5%, according to the preliminary assessment of the Statistical Office of the Republic of Serbia (RZS), despite a rather slow start to the year and assessments that even 2% would be quite satisfactory.
We entered the new year with a new ambitious development plan, Serbia 2027, which replaced the still unfulfilled previous ambitious plan, Serbia 2025.
According to the new plan, Serbia will reach a GDP of 92.7 billion euros by 2027, announced President Aleksandar Vučić.
“Last year, we reached 69 billion in GDP for the first time. In just three years, it will surpass 90 billion. We can jump to 100 billion,” confirmed Siniša Mali, the Minister of Finance, speaking about the new plan called “Leap into the Future.”
As in previous years when announcing or previewing successes, the minister has again slightly rearranged the years. Now he announced that in three years, we will surpass 90 billion euros in GDP. However, if we look at the statement of the President of Serbia, “At the end of 2027, if we do everything we have planned, the GDP will be 92.7 billion,” we see that it actually refers to four full years—2024, 2025, 2026, and 2027.
In any case, a GDP of 92.7 billion euros would represent an increase of about 34.5% compared to the GDP achieved last year. Although the amount seems impressive, it is actually an annual nominal increase in GDP of about 7.6%.
The calculation is significant because it involves nominal growth, which includes inflation. For example, last year, Serbia’s GDP increased by more than 14%, but the real growth was only 2.5%. The rest went to higher prices.
If we take a closer look at the projections of international financial institutions, we can see that the government’s forecasts actually rely on the IMF’s projections.
In the latest World Economic Outlook (WEO), the IMF projected a real GDP growth of three percent and inflation of four percent for Serbia this year.
On the other hand, the Ministry of Finance, in the fiscal strategy for 2023 with projections from 2024 to 2026, projected a real GDP growth of 3.5 percent and a deflator of 4.6 percent, estimating that inflation will be 4.9 percent.
The IMF forecasts a medium-term real GDP growth rate of four percent by 2028, while the Ministry of Finance expects it to be four percent in 2025 and 4.3 percent in 2026.
With inflation, this would mean that nominal growth rates would be over seven percent, which aligns with officials’ statements.
However, the optimistic projection that we can reach a GDP of 100 billion euros at the end of 2027, if all goes well, would imply an annual nominal GDP growth of almost 10 percent. Given the inflation projected by both the IMF and the Ministry of Finance, as well as the target of the National Bank of Serbia (1.5 to 4.5 percent), this is so optimistic that economists politely describe this development as “unlikely.”
Economist Libek Mihailo Gajić points out that nominal growth rates of around seven percent or four percent when excluding inflation are achievable and entirely in line with the IMF’s projections.
“The numbers make sense, but anything can happen. A growth rate of four percent is not that high, and the analysis of the Fiscal Council shows that Serbia’s long-term growth rate is from three to 3.5 percent. If interest rates fall to facilitate investments and we have a favorable agricultural year, four percent is achievable. In addition, there are announcements of large investments, led by EXPO 2027, an influx of foreign direct investments, and expectations of further growth in the ICT sector and export revenue growth to 10 billion euros from this sector,” evaluates Gajić.
On the other hand, there are also problems that can hinder the plans.
“The problem is low domestic investments due to a poor business environment, corruption, and a lack of rule of law. Secondly, the labor force in Serbia is decreasing. Every year, there are 25,000-30,000 fewer people entering the labor market than those retiring. This will drive up wages, but it means that wages will grow faster than productivity,” he notes, adding that this is also why 50,000 work permits were issued to foreigners last year.
While this economist expects that we could achieve these growth rates, he also questions whether they are sufficient.
“We can ask ourselves whether, instead of these four percent, it is possible to grow at a rate of five or six percent. Already in 2019, the World Bank conducted a study estimating that with a set of reforms, we could have a growth of seven percent annually over a period of 10 years. From there, it follows that these four percent are not necessarily that high,” emphasizes Gajić.
With a real growth rate of seven percent over 10 years, the economy roughly doubles. This is precisely the message the EU sent to the Western Balkan countries at the end of last year when it announced its Growth for the Western Balkans plan.
“The growth plan has enormous potential and could double the economy of the Western Balkans in the next 10 years,” stated Ursula von der Leyen, President of the European Commission.
This latest “carrot” from the EU for the poorest European region is based on strengthening the integration of the region with the EU market, greater economic integration within the region, and the third pillar would be reforms of society and the economy. Finally, it mentions six billion euros, including two billion in grants and four billion euros in loans.
The program Serbia 2027 is dominated by promises of projects, the construction of stadiums, EXPO, roads, railways, buildings, but lacks specific commitments regarding reforms, such as institutional reforms.
Recently, Peter Tabak, an economist from the EBRD, stated on a panel that growth could accelerate to four or five percent, signifying a genuinely rapid development.
“To achieve this, not only larger investments are needed but also more efficient public administration and better management of state-owned enterprises. A few years ago, research showed that improving the efficiency of state-owned enterprises to the level of private ones would lead to a two percent increase in GDP,” explained Tabak.
However, if we look back, Serbia achieved annual rates of real growth exceeding four or even five percent consistently only in the period from 2001 to 2008, after emerging from the turmoil of the 1990s. Since then, or since the outbreak of the global economic crisis in 2008, growth has exceeded four percent in only three years.
In 2018 and 2019, there was growth of 4.5 and 4.3 percent, respectively, which was interrupted by the pandemic and recession. In 2021, a strong recovery was recorded with a growth rate of 7.7 percent. Before that, there were two years of recession and fiscal consolidation. The last two years saw the war in Ukraine and growth of only 2.5 percent.
Saša Đogović, an economist and author of the publication “Strateo,” assesses that everything is feasible, depending on inflation and the exchange rate. However, he believes there is a small probability that this plan for economic growth will actually be realized.
“To reach the announced 92.7 billion in four years is possible, but much will depend on geopolitics, events in the EU, and, above all, the German economy. Will there be demand for our products? Although I believe they are counting on the start of electric car production in Kragujevac, which will drive the industry,” notes Đogović, adding that he expects the German economy to start recovering from spring onwards after a recessionary year.
He also emphasizes that he expects a budget rebalance in May and an increase in the deficit to finance capital projects.
“I believe they will go with a deficit of up to three percent of GDP to avoid jeopardizing the level of public debt, which will not exceed 60 percent of GDP. Within that framework, they will implement major projects, and I wouldn’t be surprised if they postpone or slow down the implementation of some less important ones.
As for the optimistic estimate that GDP could reach 100 billion euros by the end of 2027, I think there is nothing in it,” says Đogović.
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