Despite positive indicators in some sectors, the German economy is experiencing a mild recession at the start of the year. According to data from the German Statistical Office for July, GDP in the second quarter of this year was 0.1 percent lower than in the first quarter. This downturn follows a period of weak recovery and growth after Germany’s recession at the end of 2023.
Economists are concerned that the economic troubles in Germany could negatively affect Serbia, given the close economic ties between the two countries. German investments are significant in Serbia, with German capital present in approximately 900 companies. Thus, Germany’s economic challenges are also a concern for Serbia.
“There’s a saying that when the German economy sneezes, the Serbian economy can catch a cold,” Veljko Mijušković, Assistant Professor at the Faculty of Economics, told Euronews Serbia.
Data from the Leibniz Institute for Economic Research shows that Germany’s main economic driver, the automobile industry, is operating at only 77.7 percent of its capacity. This affects Serbian companies that supply components to German firms. According to Aleksandar Milošević, Deputy Director of the New Economy, a drop in German car exports impacts Serbian suppliers. Mijušković warns that the crisis could lead to reduced investments or capital withdrawals from Serbia and could also affect Serbian workers in Germany, potentially causing layoffs or returns to Serbia, increasing pressure on the local job market.
The European integration process could also face delays. Mijušković notes that a weakened German economy might lead to social unrest and reduced geopolitical influence, which could shift Serbia’s focus to other foreign trade partners.
In the short term, Serbia might endure the initial economic impact, but finding long-term solutions that align with EU expectations will be crucial.
Bojan Stanić from the Serbian Chamber of Commerce believes the drop in German GDP is not yet affecting Serbia’s economy significantly. However, he warns that this might change by the end of the year. “Our exports have shown a slight increase in both value and quantity so far, which indicates that we have weathered the first wave of the crisis. But the situation could worsen in the latter half of the year,” Stanić said.
He highlighted the ongoing debate in Germany about fiscal policy, with disagreements between the government and businesses over tax policies and economic support measures. Stanić cautions that significant tax increases could lead to capital moving to countries with more favorable tax conditions, while tax cuts could deepen wealth inequality.
To mitigate the impact, Serbia must adapt its economy, focusing on growth drivers such as the EU integration process and boosting purchasing power through wage increases. However, replacing the EU market, particularly Germany, is challenging as it remains Serbia’s primary strategic partner.
Stanić anticipates that while Europe, led by Germany, is losing competitiveness—especially in the auto industry due to increasing competition from China—the situation will stabilize over time.
For further insights into the impact of German companies in Serbia, you can watch the full discussion with Bojan Stanić in the video below.
