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Serbia overcame the crisis, but the fight with inflation is ahead

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Real GDP growth slowed during 2022, but in the Western Balkan countries it actually surpassed 2019 levels. This growth was stimulated primarily by the results of domestic demand.

Also, it was shown that foreign direct investments in the countries of the region remained resilient during the three-year period of the crisis at the global level, and are at approximately the same or even higher levels in some countries.

These are briefly the conclusions of the spring report of the World Bank office presented today in Belgrade.

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“The fact is that the entire region felt the negative consequences of several simultaneous external crises, and that cannot be denied. This was reflected in the slowdown of economic growth and the rise of real inflation to a 15-year high in Serbia. The good news is that the necessary easing factors have been achieved through quick reactions in fiscal policy, while current unemployment is at the level of 9.4 percent, which is also a multi-year low. The forecast is uncertain, but moderate growth is expected for the entire region – for Serbia, specifically, 2.3 percent of GDP by the end of 2023,” said Nicola Pontara, director of the World Bank office in Serbia, at the beginning of today’s report.

Pontara emphasized that these are better statistical data than previously forecast in the current conditions prevailing on the continent, both in the entire region and especially in our country.
The leading economist of the World Bank for the Western Balkans, Richard Record, noted that although the unemployment results are at record low levels, still around 900,000 people in all observed countries are unemployed, and that a better “intersection” of supply and demand is needed through all countries of the Western Balkans.

Economist Milan Lakićević spoke about the results of the Serbian economy in 2022. Gross domestic product grew by 2.3 percent, which is certainly not a bad result from the perspective of rising energy prices, inflation and the crisis in Ukraine, but the worse data from the end of the year, which further lowered the final result, is worrying.

On the positive side, the service and construction sectors showed certain signs of recovery compared to the “pandemic results” of 2021.

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“The main condition for reaching the average EU standard is accelerating economic growth. Simply put, doubling GDP growth will halve the expected time to reach that standard. In recent years, Serbia has done a lot to establish macroeconomic stability, its IT sector is doing extremely well, and foreign investments continue to come, but on the other hand, more work needs to be done on the specialization of the workforce, greater gender equality and the inclusion of part of the female population in the labor market, which shows deficits in certain segments”, said Nikola Pontara.

“Although inflation reached a new peak in March with 16.2 percent year-on-year according to the results of the National Bank of Serbia, it slowed down on a monthly basis and it is expected to finally slow down significantly by the end of the year. The main driver of price growth is the increase in the price of electricity and gas,” said Lakićević.

In the spring report of the SB, it is noted that the prices of energy products in Serbia have a different percentage share in different industries, for example in transport services they have a share of about 45 percent, while in textile production they contribute to the final prices of products with seven percent.
Energy efficiency and less reliance on the import of energy from one main source will remain the focus of the transformation of Serbian energy in the coming period, Lakićević concluded.

“Regional integration and acceleration of mutual trade agreements, as well as greater labor mobility will significantly contribute to the economic growth of all surrounding countries. Of course, the prerequisite for that is that all the involved countries undergo the necessary reforms at the same time”, said Richard Record.

In the end, when asked by the portal whether the last month’s events in the American banking sector were taken into account in the latest report and the latest growth projections of the World Bank, Rekord replied that they were not, but that “there is a consensus that the problems of the three American banks are related exclusively to specific issues with their US customer base and that they have not spilled over into other markets. Greater pressure on the financial sector is expected in the medium term, but at the moment there is no alarming increase in NPLs, for example, or massive withdrawal of deposits from a large number of banks, except for the few that are directly affected by this situation,” noted the economist.


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