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Serbia, Two key challenges this year are inflation and investments

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The entire region of the Western Balkans, including Serbia, did not remain immune to the turbulent period, as well as to the unpredictable geopolitical and economic development in Europe and the whole world, starting from February last year. The successful 2021, which followed the crisis of Covid 2020, was abruptly interrupted, and the optimistic expectations from the beginning of last year were replaced by rather gloomy forecasts. The consequences of the slowdown in global and regional trade, the strong growth in food and energy prices will only become visible in the second half of 2022, the president of the Association of Economists of Serbia, Aleksandar Vlahović, points out in an interview with

He reminds that GDP growth in Serbia in the first and second quarters of 2022 reached a satisfactory 3.8 percent and 4.2 percent, but the third quarter brought a growth of an insignificant one percent, and after the continuation of the slowdown in the rest of the year at this time GDP growth is estimated at two to 2.5 percent. He adds that the initial budget projections for last year planned a growth of 4.5 percent.

“At the same time, as a result of additional fiscal interventions last year, the budget deficit remained at a high level in 2022 – approximately four percent of GDP. Serbia ended the previous year with relatively good macroeconomic parameters, although we have a number of warning signals: a significant increase in the current deficit, high inflation and, especially, high inflation expectations, deepening of the foreign trade deficit and further stagnation of the level of private investments. It is clear that the economic situation in EU countries, especially Germany, will have a dominant influence on economic trends in this and the following years. This is because the mentioned countries are our key foreign trade partners, and the eventual recession of their economies has a negative impact on the economic development in our country.

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We face several key challenges: first, how and at what speed to stop inflation and change the price trend. It is evident that inflation in Serbia is only partially “imported” and that, as time goes by, high inflation expectations raise the so-called “core inflation”. The NBS justifiably tightens the monetary policy, but it cannot defeat inflation alone, a synchronized fiscal policy is also needed, more precisely a fiscal policy without an unnecessary increase in spending. The second challenge relates to maintaining a high level of capital and foreign investments, but also to raising domestic private investments, which requires visible positive developments in the improvement of the business environment.”

Deadlines for submitting financial statements for the previous year are approaching. What kind of business results do you expect? And what if you evaluate the business climate in Serbia during the previous year globally?

“It is to be expected that small and medium-sized enterprises will report worse results in the past year, primarily due to difficult foreign trade conditions, as well as high inflation and a significant increase in the price and risk of borrowing.” On the other hand, it is evident that a number of large companies, especially in the field of energy and metals, i.e. all that produce stock exchange products, will realize extraordinary profits, again as a result of global geopolitical and economic trends. In general, the quality of the business climate, more precisely the economic conditions, did not improve in the past year. If this is true, it is enough to take a cursory look at the international reports that rank Serbia, as well as all other countries of Europe and the world, according to different criteria. The consequence of such a situation is the already mentioned stagnation of the participation of domestic private investments in the total level of investments. This means that domestic businessmen have valid reasons why they do not invest their capital much more energetically. I have been mentioning for years that this is one of the most important indicators, and that the Government of Serbia should remove barriers to investment by domestic businessmen with its regional and industrial policies.

How much has the rising inflation affected business and when could stabilization of prices and markets occur? How real is the threat of recession?

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“I think there is no real danger of a recession in our country, except in the case of a significant break in cooperation with developed countries in Europe and the world, which would be a consequence of political decisions, which the political leadership of our country has been talking about these days.” Under normal circumstances, stagnation of economic activity follows, and it is to be expected that the growth of the gross domestic product in Serbia will be around two percent. To the extent that our region and especially EU countries recover, it will have a positive effect in our country. As for inflation, after the last increase in the price of electricity and gas, it is realistic to forecast that the highest level of inflation was reached in February, and that there should be stagnation and a drop in prices in the months ahead. Monetary policy is currently adequately set, and encouraging news from the government that there will be no more economically unproductive “wasting money”, and that the increase in salaries in the public sector will not exceed the planned inflation. By the way, inflation in the USA has decreased significantly, while the trend of the general price level in the EU is slightly decreasing.”

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