The impact of support measures on the economy was positive, but the World Bank suggests that a less generous but better targeted package could have the same effect.
The prospects for the recovery of the world economy are increasing, so the World Bank has improved the forecast of the economic decline in the Western Balkans in 2020 from the previous 6.5 percent to 4.8 percent. As for Serbia, this international financial institution kept the assessment made at the beginning of October. And that is that the decline of the Serbian economy will amount to three percent instead of 3.5 percent, as shown by their report from April. They expect a growth of 2.9 percent for us next year.
The World Bank states that the decline in Serbia’s GDP will be smaller than in the rest of the region. It is believed that the recovery will begin in 2021 and that growth will return to the previous trajectory in the medium term.
Their expectations differ from those of domestic officials who claim that the decline in economic activity this year will range from minus 1.5 percent of gross domestic product (GDP) to zero, which means economic stagnation. As for the forecast for next year, our officials are talking about GDP growth of six percent. As a reminder, before the crisis caused by the virus, the World Bank predicted a growth of between four and 4.5 percent in the medium term.
Ivan Nikolic from the Institute of Economics in Belgrade is not surprised that the World Bank has improved the prospects for the Western Balkans, because the results are better, mostly because of Serbia.
– We have sponsored this as the strongest economy, we are improving the average of the Western Balkans, because as the strongest economy we make up two fifths of the region. The forecasts are changing, it will depend on the health situation, on the economies of the Eurozone and the region, and all that will affect a faster recovery. Additionally, if the state continues to insist on capital projects – says Nikolic.
He explains that a possible growth rate of six percent next year includes transfer, compensation from this year’s lower levels. Our long-term trend of high growth began in 2017 and the goal is to maintain a growth rate of four, five percent per year. Such growth brings us to an average salary of 900 euros in 2025.
Milan Kovacevic, a consultant for foreign investments, believes that projections are difficult to make, and the main cause of changes in that area are uncertainties about the pandemic and its consequences.
– Due to the structure of the economy, we will have a slightly smaller economic decline, and that should be compensated next year. That is why the budget for 2021 should be made carefully. Many economic activities will still have restrictions, small business, services, tourism, traffic. There is a lot of uncertainty, care must be taken not to have a large budget deficit and an increase in public debt. I am worried about the announced increase in salaries in the public sector, and their salaries are higher than in the private sector. The increase should be just enough to preserve purchasing power. On the other hand, we have a private sector that is facing great difficulties. And those who received state aid can lay off ten percent of employees – says Kovacevic.
The World Bank states that, despite the slowdown in the economy, the unemployment rate in the second quarter of 2020 was at a historical minimum of 7.3 percent, thanks to the state program of fiscal incentives.
However, as they emphasize from the World Bank, the help to the Serbian economy to overcome the pandemic had a price: fiscal stimulus measures now make up almost 13 percent of GDP, which will lead to the projected fiscal deficit of 7.6 percent.
This year started well, GDP grew by 5.1 percent in the first quarter, but growth slipped into negative territory with the application of state measures to control the spread of the Covid 19 pandemic. Preliminary estimates indicate that GDP fell by 6 percent in the second quarter, although this result is better than in neighboring countries, where the decline in GDP averaged 11.5 percent.
– The protracted crisis caused by the corona virus during the summer, the elections, the slowdown in legislative activity and economic trends around the world will affect growth this year. Another reason for the slower recovery in the second half of 2020 is the high base for comparison from the second half of 2019.
Also, in the second quarter of 2020, compared to 2019, there were 183,000 people on the labor market, and 132,000 of them previously had a job in the gray economy, so unemployment fell to a record low level of 7.3 percent.
The state package of measures to help the economy led to a high deficit of 4.8 percent of annual GDP in the second quarter, with the growth of public debt of 6.1 percentage points from December 2019 to 59 percent of GDP at the end of June 2020.
The impact of support measures on the economy was positive, but the World Bank suggests that a less generous but better targeted package could have the same impact, and that the hardest hit companies could receive more aid, which would mitigate the effects of the pandemic even more while the fiscal costs of the program would be reduced.
According to the representatives of the World Bank, the deficit could increase even more, if certain potential obligations are realized, which would, consequently, increase the public debt. Potential obligations that affect public finances can be realized, especially those related to the deterioration of business results of public companies, Telekom Srbija, Air Serbia, in addition to those that have long been facing financial challenges such as Railways and Srbijagas, according to the World Bank, Politika reports.
