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Serbia balances growth and investment: EU Ties and China’s limited role

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While Serbia may be more open to Chinese investment than many European countries, the extent of Beijing’s influence in its economy has been overstated. The warm reception of Chinese President Xi Jinping’s recent visit to Serbia, including grandiose official narratives and mutual praise, has led to misconceptions about China’s role in Serbia.

The People’s Daily emphasized the “ironclad friendship” between China and Serbia, and Serbian newspaper Politika published a letter from President Xi describing Serbia as “a land of beauty and legends.” Despite claims that China was Serbia’s largest source of foreign investment and its second-largest trading partner last year, data from Serbia’s national investment agency show that Germany (13.5%), Italy (11.7%), the US (10.9%), and Russia (10.9%) lead in foreign direct investment (FDI), with China in fifth place at 10.5%. While China is Serbia’s second-largest trading partner, it accounts for only 12.2% of Serbia’s foreign trade, far behind the European Union, which accounts for over half.

Xi’s visit coincided with the 25th anniversary of NATO’s bombing of the Chinese Embassy in Belgrade and included the announcement of a new free trade agreement, which will strengthen economic and political ties between the two nations. However, this agreement had already been established last year.

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Steady economic growth

Serbia’s economic growth has been stable but modest in recent years. In 2023, the GDP grew by 2.5%, driven by strong performances in agriculture, construction, and a recovering energy sector. The International Monetary Fund (IMF) forecasts further growth acceleration to 3.5% in 2024 and 4.5% in 2025, supported by increases in consumption, investment, and net exports. By 2024, Serbia’s nominal GDP is expected to reach 81.69 billion USD, with a GDP per capita of 12,357 USD, trailing its EU neighbors Croatia and Romania.

The inflation rate, which peaked at 12.4% in 2023, is projected to decrease to 5.3% in 2024 and 3.5% in 2025. Unemployment, though gradually decreasing, was at 9% in the first quarter of 2024.

Key economic sectors

Agriculture is a vital sector, contributing about 6.5% to GDP and employing 14% of the workforce. Serbia’s diverse climate supports a variety of crops, including maize, wheat, and fruits. The country has also invested in fruit processing industries, producing brandies, jams, and juices.

The industrial sector, which contributes around 23% to GDP, includes significant outputs from automotive, food processing, chemicals, base metals, and machinery manufacturing. Industrial production grew by 2.4% in 2023, with manufacturing increasing by 0.5%.

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The dominant services sector contributes over 52% to GDP and employs 57% of the workforce. The ICT industry is a standout, with exports of ICT services reaching 2.9 billion euros in 2022. This sector has been instrumental in Serbia’s economic growth, reflecting a steady increase in its GDP share.

In 2023, Serbia welcomed over 2.1 million foreign tourists, a 20% increase from the previous year.

Political and economic context

As a candidate for EU membership, Serbia has implemented significant structural and institutional reforms to align with EU standards. These reforms focus on governance, business environment, and economic stability. The government has also improved fiscal management, reducing the general government gross debt from 53.5% of GDP in 2022 to an anticipated 49.6% in 2024.

However, challenges remain, including political stability, regional tensions, and economic diversification needs. EU accession talks are hindered by the unresolved status of Kosovo, deterring some investors and stalling access to EU funds and markets.

Other economic challenges

Despite positive growth trends, Serbia faces high inflation rates and structural issues in the labor market. The country also needs to continue modernizing its industrial base and address productivity concerns. The green transition offers both opportunities and challenges, with investments in renewable energy and sustainable infrastructure expected to bolster long-term economic resilience.

Conclusion

Serbia’s economy is on a steady growth path, supported by diverse sectors, strategic reforms, and increasing foreign investment. However, overemphasizing China’s role in Serbia’s economy overlooks the country’s broader European integration efforts and long-term future within the EU framework. Serbia’s proactive approach to reforms and international partnerships positions it well for future development, with a continued focus on structural reforms, the knowledge economy, and regional integration being crucial for its economic trajectory.

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