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Analyzing economic trends and public investments: Prospects for Serbia in 2024

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At the outset of 2024, Milojko Arsić, editor of the “Quarterly Monitor,” presented an assessment suggesting continued moderately positive trends from the latter half of the previous year. Gross Domestic Product (GDP) is on the rise, alongside real wages, while inflation is decelerating, and external deficits are diminishing.

Expectations for the year foresee economic growth of three to 3.5 percent, slightly below the long-term trend of approximately four percent. Inflation is projected to surpass the midpoint of the National Bank’s target range of three percent. Compared to Central and Eastern European countries, economic activity in Serbia is advancing more rapidly, albeit with higher inflation. Inflation is anticipated to gradually slow down in the coming months, aligning with the NBS target corridor by mid-year. However, the latter half of the year may witness inflation edging towards the upper threshold, resulting in an average inflation rate of four to 4.5 percent for 2024.

Key drivers of recovery in 2024 include private consumption growth propelled by wage and pension increases, augmented by public investment growth and a mild European economic rebound. Conversely, recovery could be hampered by elevated interest rates dampening domestic and foreign investments, alongside geopolitical risks affecting foreign trade and primary product price volatility.

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Projections suggest that the NBS may initiate interest rate reductions by mid-year.

Arsić also addressed the investment plan for Expo 2027, emphasizing that public investments are slated to reach seven percent of GDP, a favorable development. However, the efficacy of such investments hinges on the extent to which domestic resources, enterprises, and labor are utilized. The involvement of foreign companies and workers could dilute the positive impact on the local economy.

Moreover, there’s a risk that high growth in current expenditures alongside the realization of public investments could elevate the deficit in public finances beyond the planned 2.2 percent of GDP, though mitigation measures can be implemented.

The “Quarterly Monitor” authors anticipate stagnation or a slight decrease in nominal interest rates, coupled with rising real interest rates in the coming months. They foresee relatively high interest rates persisting over the next year or two.

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Serbia, like many European nations, grapples with a shortage of labor in specific skill sets, attributed to demographic shifts and labor supply-demand mismatches. Employment is expected to gradually increase in 2024, accompanied by modest growth in average earnings.

While foreign direct investment (FDI) inflows decelerated in 2023, they remained relatively robust. However, a further decline in FDI inflows is anticipated in 2024 due to sluggish economic growth in EU countries, prevailing high interest rates, reduced tax incentives for EU companies to invest abroad, rising business costs in Serbia, and insufficient labor force supply in certain categories.

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