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NBS analysis: Impact of geopolitical tensions on Serbia’s inflation and growth projections for 2024

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The National Bank of Serbia (NBS) analysts have evaluated the potential effects of heightened geopolitical tensions on Serbia’s inflation and economic growth forecasts for 2024.

Amidst the baseline scenario predicting a 4.4 percent average increase in prices and a 3.5 percent GDP growth rate for the year, the NBS has outlined two alternative scenarios. These scenarios hinge on global movements in oil prices and primary agricultural products. The NBS emphasized the escalating geopolitical tensions, particularly in the Middle East, as a significant risk to the realization of these projections.

The pessimistic scenario assumes a rise in oil and agricultural product prices, while the optimistic scenario relies on a faster decline in eurozone inflation and lower prices for primary goods than in the baseline scenario.

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The NBS highlighted the impact of failed negotiations and continued conflict in the Middle East, as well as attacks on energy infrastructure in Ukraine and Russia, resulting in volatile price fluctuations in global primary product markets. Oil prices surged to around $93 per barrel in mid-April, a 20.2 percent increase from the end of the previous year. Moreover, increased costs of overseas transport contributed to higher global container transport indexes.

Continued conflict with Israel could further elevate energy prices and consequently affect the prices of other primary commodities. In the pessimistic scenario, NBS analysts anticipate a rise in oil prices to over $102 per barrel by the end of 2024, followed by a moderate decrease in 2025. This would lead to an 11 percent increase in global primary agricultural product prices by the end of 2024, followed by an eight percent decline in 2025.

Conversely, the optimistic scenario assumes a faster slowdown in eurozone inflation, resulting in lower inflationary pressures. In this scenario, oil prices are projected to be around $71 per barrel by the end of 2024. Global prices of primary agricultural products would also decrease compared to the baseline scenario.

The effects of these scenarios would manifest in varying levels of inflation and economic growth. The pessimistic scenario could lead to higher inflation rates and slower GDP growth due to increased production costs and reduced external demand. Conversely, the optimistic scenario could result in lower inflation rates and faster GDP growth, driven by easing monetary conditions and higher external demand.

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Ultimately, the NBS analysis underscores the importance of monitoring geopolitical developments and their potential impact on Serbia’s economic outlook for 2024.

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