By the end of the year, we can expect growth between one and two percent, while the „heroic scenario“ would amount to 2.5 percent,“ was the conclusion of the recently held session of the GDP Council, according to the minutes of the session, which „Danas“ newspaper had access to.
This is more pessimistic than the projection of state institutions, the National Bank, which forecasts that GDP growth will be in the range of two to three percent, or the Ministry of Finance, which projects growth of 2.5 percent this year, and even than the estimates of the World Bank, which expects the growth of the Serbian economy. Of 2.3 percent.
The council, led by Prime Minister Ana Brnabić, is particularly concerned about what will happen to this year’s agricultural harvest due to heavy rains, as well as the decline in the construction industry, and especially “unnecessary stoppages in construction and railways”.
As stated in the minutes, the Prime Minister assessed that “the presented results are very bad and expressed her fear that the meetings of the GDP Council, which have been held since the beginning of the year, did not produce any results and that the Government will not achieve the results that were set as targets”, especially referring to the performance of construction works and the procedure for issuing building permits.
In the first quarter of this year, the construction industry recorded a drop in constant prices (when the effects of price increases are excluded) by 0.5 percent, but in building construction, the value of completed works fell by as much as 20 percent.
In the first three months, the number of building permits fell by 6.1 percent compared to the same period last year.
In the first quarter of this year, GDP grew by 0.7 percent compared to the same period in 2022.
Economist Saša Đogović points out that the economic situation is going down, and that only the energy sector is holding the industry back due to the big drop last year at this time, which is why it is now recording a big jump in production.
“Manufacturing industry is in the red, and this year we will finish in the red, primarily because of energy. Personal consumption is in decline due to both inflation and lower demand for loans. I do not believe that GDP will reach 2.5 percent this year, or even 2.3 percent as forecast by the World Bank. And two percent is a full cap,” notes Đogović.
According to him, there is great uncertainty and it is difficult to estimate economic growth this year also due to political instability.
“The level of investment risk in the country will depend on whether the political crisis will be resolved in the institutions or on the street, and for which the government is most responsible, and that means the inflow of foreign direct investments. We have an underdeveloped domestic entrepreneurship and we threw everything at the FDI card. And among them there are a lot of investments that do not increase the competitiveness of the country or the purchasing power of citizens”, he notes, concluding that economic growth this year will be weak and below the average of the Western Balkans.
Ljubodrag Savić, a professor at the Faculty of Economics in Belgrade, is not an optimist either, especially because of what is happening in Europe.
“Serbia can hardly do well if Italy or Germany are in recession. Some experts I trust expect the recession in Germany to deepen in the long term. The contract on the supply of Russian gas through Ukraine expires in 2024, and if it is not extended, the question is whether there will be gas for industry, and for part of the industry, it is not only fuel but also raw material,” notes Savić.
He reminds that In Serbia, about 80,000 people work in the factories of German companies that produce for a well-known customer.
“If there are no orders for them, there is no work for these people,” he warns, adding that large inflows of foreign currency into the country come from workers’ remittances from the EU.
He also points out that inflation is high here, as well as in Europe.
“While relatively low inflation pushes economic growth. When it gets too high, it slows it down. Inflation over 10 percent is high and it is not under control,” noted Savić, indicating that he expected the NBS to continue increasing the interest rate after the break, as well as that this was not the last increase in the reference interest rate.
“The situation is uncertain, interest rates are rising, loans are more expensive, the question is what will happen to jobs and salaries. The state has now announced an increase in salaries and pensions, but realistically it is not a particularly large increase. When inflation sets in, it destroys economic activity,” assesses Savić, adding that we are in the same boat as other European countries.
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