Amidst global uncertainties such as upcoming elections in key nations like the USA, persistent geopolitical tensions and economic stagnation within the EU—Serbia’s primary foreign trade partners—the road ahead for growth and predictability faces significant challenges. Economic policymakers must now focus on enhancing the competitiveness of Serbia’s export-oriented sectors and fostering domestic private investments to navigate these turbulent times effectively.
Since the latter half of 2023, Serbia’s economy has shown modest acceleration, registering a growth of 4.7% in the first quarter of 2024, according to data from the Republic Statistical Office (RZS). This growth has been driven primarily by a resurgence in household consumption, which rebounded sharply after a sluggish period in early 2023. In the first quarter of 2024, real household consumption surged by 4.4%, excluding the impact of inflation.
The retail trade sector, integral to economic activity, also rebounded strongly, recording an 8% real increase in the first four months of 2024 compared to the previous year. This sector, after experiencing stagnation in 2023, expanded by 7.3% in the first quarter of 2024, contributing significantly to overall value added growth.
However, household consumption faced challenges due to a restrictive monetary policy and high interest rates, resulting in nominal growth of bank loans to households averaging only 2-3% in 2023 and early 2024. Consumer loans showed signs of revival since late 2023, contrasting with declining trends in housing loans.
Despite these challenges, fiscal policies bolstered consumption through wage increases in the public sector and pension adjustments. Public sector salaries rose by 10% at the start of 2024, following a 13% increase in 2023, while pensions saw an almost 15% increase at the beginning of this year, after a 20% rise in 2023. These measures mitigated the effects of previous declines in real wages.
Changes in foreign investments and exports have also shaped Serbia’s economic landscape. Although unemployment dropped to 9.4% by April 2024, concerns linger over wage growth in the private sector and potential long-term competitiveness issues. Real earnings rose by 8% year-on-year by the first quarter of 2024, indicating underlying productivity challenges and potential inflationary pressures ahead.
The business sector, as reflected in financial reports for 2023, saw mixed outcomes. Overall business income increased nominally by 2.7%, but registered a real decline of 4.5%. The processing industry, a critical segment, reported a nominal income drop of 2%, corresponding to a real decline of 8.9%. Rising labor costs and financing expenses further impacted profitability, with total net profit among profitable companies increasing modestly by 3.6%, yet declining by almost 10% in the processing sector.
Despite these challenges, Serbia witnessed a robust growth in total investments by 7.3% in real terms during the first quarter of 2024, following a 3.8% increase in 2023. However, exports faced setbacks, particularly in balancing trade due to faster import growth than exports. Real export growth was modest at 1.1% in early 2024, compared to 2.4% in 2023, highlighting ongoing challenges in sustaining export-driven growth.
Moreover, the structure of exports and foreign direct investments (FDI) has shifted, with increased FDI inflows into mining and lower-level processing sectors, while domestic private investments remain below regional benchmarks. Although FDI rose by 2% in 2023 to €4.5 billion, mining attracted a substantial share, contrasting with declining investments in higher value-added processing industries.
In conclusion, while Serbia navigates through global uncertainties and domestic economic challenges, strategic focus on enhancing export competitiveness and boosting private investments will be crucial for sustained economic resilience and growth in the foreseeable future.
