In the August edition of the Inflation Report, the National Bank of Serbia remained with the projection of GDP decline in 2020 of 1.5 percent, while in 2021 it expects growth of six percent, which would actually return the Serbian economy to annual growth rates of four percent from the previous two years.
In their analysis, the risk of economic activity declining more than projected comes from outside given the new wave of coronavirus spread in Europe and the world.
The NBS estimates that domestic demand will be reduced this year, but net exports will make a positive contribution, since the current account deficit decreased by 47 percent in the second quarter of this year and is expected to be around five percent of GDP for the whole year, which is a decrease compared to 2019.
“Next year will see an accelerated economic recovery of about six percent, driven by domestic demand and exports, which contributes to a timely and adequate response of economic policy makers in Serbia and maintained a favorable medium-term perspective of our country, which will ensure a return to a stable medium-term growth path of about four percent annually,” the central bank’s report states.
This estimate of the National Bank is the closest to the estimate of the Ministry of Finance, which is included in the budget revision for this year of minus 1.8 percent. On the one hand, it is much more optimistic than other estimates, such as the IMF and the Fiscal Council, which believe that the fall in GDP will amount to three percent, or the Vienna Institute for International Economic Studies, which expects minus four percent. On the other hand, the President of the Republic of Serbia, Aleksandar Vucic, constantly repeats the expectations that we will pass without any fall, and the only one in Europe.
Danas’ interlocutors, on the other hand, believe that the NBS forecast is also optimistic. Dejan Soskic, a professor at the Faculty of Economics in Belgrade, does not expect a drop of less than four to five percent.
“The height of the decline depends on the structure of the economy. The backward countries have a smaller decline because they mostly produce existential products, food of lower level of processing, primary production and domestic, non-tradable services. The less integrated the economy is into economic flows, the smaller the decline, and we should hardly brag about the backward economic structure. Besides that, I think that the reduction of GDP of 1.5 percent is too optimistic and that we should prepare for more unfavorable outcomes,” Soskic believes.
According to the NBS estimate of a 6.5 percent drop in the second quarter of this year, only agriculture had a positive contribution to GDP of 0.1 percentage points, while industry contributed to the reduction of GDP by 1.6 points, services by 1.2 points, construction only 0.1 points and net taxes with 3.2 points due to fiscal measures to help the economy and citizens.
Sasa Djogovic, the author of the publication Macroeconomic Trends in the Serbian Economy, also believes that the NBS’s assessment is optimistic and believes that the decline will amount to three percent.
“I expect that agriculture will still grow this year, and that is why the decline could be slightly less than three percent. The biggest question mark is construction due to the very high base from the second half of last year, which is a consequence of the construction of the Turkish Stream. A lot of infrastructure projects are being built, and there seems to be a demand for apartments, so even if there is a decline in the construction industry, it will be due to a high base, but not because the construction industry is in crisis. The car industry was the most affected, although Fiat’s production in Kragujevac was in crisis even before the global drop in demand for cars and the demand for steel decreased. In addition, the services sector, apart from retail trade, was affected. In general, the production of durable consumer goods and capital goods has been affected,” Djogovic estimates.
And he agrees that the underdevelopment of our economy is in fact now the reason for the smaller decline compared to developed countries and that the economy of Germany, France or the United States should not be compared with Serbia.
“Our economy is so small that it can’t even collapse as much as the German or American one. Developed countries are connected and produce luxury products of a high degree of processing that we do not produce. Due to the epidemic, the demand for such products has fallen, while the drop in demand is not so much for products of lower unit value that we produce,” Djogovic notes.
Professor Ljubomir Madzar reminds that evaluators have long been inclined to higher growth forecasts, which are later revised.
“The forecast of the NBS is better than the others, but I am afraid that the outcome will be less favorable. The blows to the economy are great. In addition, our data are not always reliable, so audits are done to show that this was not the case. Given this tendency towards better forecasts, I would be very pleased for this to come true,” says Madzar, Danas reports.
