According to the National Bank of Serbia, in the last quarter, the gross domestic product grew by 6.1 percent compared to the fourth quarter of 2018, and according to the NBS estimate, the full year growth reached 4.2 percent, while the preliminary estimate of the Bureau of Statistics four percent.
This is the largest quarterly growth in Europe, but it is also not the largest economic growth at the 2019 level. Last year, the European leader was Ireland with an estimated growth of 5.7 percent, followed by Hungary with five percent. Romania and Poland also saw economic growth of over four percent, with 4.2 percent each and Lithuania four percent.
In the region of Central and Eastern Europe, for which estimates have been published, Bulgaria reached 3.7 percent and Croatia 3 percent.
According to the NBS, in the last quarter the largest contribution to economic activity was made by the services sector with 2.6 percentage points and construction with 2.4 points. In other words, the two sectors contributed more than 80 percent to growth from October to December last year.
What is important in addition to the figures themselves is the structure of economic growth as well as the context. Milojko Arsic, a professor at the Faculty of Economics in Belgrade, points out that economic activity is predominantly determined by two largely unchangeable sectors.
“The question is whether and to what extent this relationship of production of tradable and non-tradable goods is sustainable, given that services and construction are largely invariable. It is important for a country like Serbia to have a strong industry”, he notes.
In addition, there is an impact of one-off factors on economic growth. This primarily refers to the Turkish stream, that is, the construction of a pipeline from the border with Bulgaria to the border with Hungary.
“The investment was made in secret. It has not been announced who built it or how many people worked on the project, so it is difficult to assess the effect on GDP”, Arsic points out.
He recalls that we had slow growth in the first half, even when the high base effect of the first half of 2018 is ruled out.
“This shows that we have had volatile and variable growth. The low base effect from the first half of this year will help a little growth in the first half of 2020”, concludes Arsic.
Economist Ivan Nikolic, editor of Macroeconomic Analysis and Trends, takes a different view of the structure of the Serbian economy. He points out that since last year’s GDP growth was 4.1 or 4.2 percent, investment contributed as much as 3.1 percentage points.
“It is the highest quality source of growth that also reflects the dynamics in 2020. Investments in construction work contributed most, but there were also investments in equipment. The share of investment in GDP reached the desired 24 percent. Foreign direct investment reached seven, eight percent of GDP and double-digit growth in exports is due to high foreign investment”, he notes.
Otherwise, according to published data, state capital investments amounted to five percent of GDP, foreign direct seven to eight, which means that domestic private investments amounted to about 11 percent of GDP.
Low growth is striking, almost stagnant industry. The total industry grew by 0.3 percent in 2019, while manufacturing grew by just 0.2 percent. Nikolic argues that this is a success, as European industries saw a steep decline at the end of last year. According to him, in December, for example, the German industry fell by 7.2 percent, thanks to a large decline in the automotive industry, while in Romania, for example, a decrease of 8.9 percent was recorded in December.
“If the contribution of the industry continues this year, with the low base from the past and the effects of the KiM taxes, that would be good, but the question is how much it will be able to resist if the bad situation with the eurozone economies persists. Also, the effects of the virus corona and the slowdown in the Chinese economy are yet to be felt. That is why I expect that domestic consumption will make a major contribution to growth this year. If we manage to achieve four percent, it will be a premium”, concludes Nikolic, Danas reports.
