The European Bank for Reconstruction and Development has increased Serbia’s growth forecast for this year to 6 percent in a new report on regional economic prospects, which is twice as much as its estimate from September 2020, when it predicted growth of 3 percent.
In the first quarter of 2021, the Serbian economy, according to the report, grew by 1.7 percent compared to the same quarter of 2020, supported by the strong development of the construction sector, but also the growth of industrial production, trade, transport and tourism.
GDP growth in 2021 will be supported by additional government health expenditures, wage subsidies and one-time payments to retirees and other categories of the population, the document states.
For 2022, the EBRD expects the growth rate of the Serbian economy to slow to 3.5 percent.
This international investment and credit institution expects a recovery in consumption in Serbia after the Covid-19 pandemic and an increase in public investment in line with the continuation of expansionary fiscal policy.
In that context, they remind that the government, after two support packages during the last year, adopted additional fiscal incentive measures in the amount of 4.5 percent of GDP (two billion euros) for 2021.
The budget for 2021 also includes a significant increase in public investment, the report said.
Strong economic recovery of Serbia
Matteo Colangeli, EBRD Country Director for Serbia and the Western Balkans, says they are pleased with Serbia’s strong economic recovery and that the Bank remains committed to supporting the authorities in sustaining this accelerated growth.
“Strengthening the competitiveness of the private sector, supporting well-structured investments in transport and environmental infrastructure, as well as the transition to green energy will be key priorities for better growth after the Covid-19 crisis,” he added.
Overall, the effects of the Covid-19 pandemic on the Serbian economy in 2020 have been moderate, according to an EBRD report.
The structure of the economy, with limited revenues from tourism and a relatively high share of basic goods in the production structure, protected the country from a deeper shock. The combination of large government support packages and less restrictive locking measures for most of the year resulted in an economic contraction of just one percent last year, the EBRD notes.
He adds that the government responded to the 2020 pandemic with two aid packages totaling about 13 percent of GDP (5.8 billion euros), which included support for the health sector, wage subsidies, financial support for citizens, tax deferrals and liquidity support for small and medium-sized enterprises through a credit guarantee scheme.
Public debt increased by about five percentage points in 2020, reaching 58 percent of GDP, the document said.
As for the risks, according to the EBRD, they are balanced and primarily relate to the pace of recovery of external demand and the speed of implementation of public infrastructure projects and structural reforms.
When it comes to the forecast for the entire Western Balkans, the EBRD expects that the production in this region will increase by 5.1 percent in 2021, which is a reflection of the strong results in the previous part of the year and the continuation of fiscal incentives.
However, continuing uncertainty about travel restrictions is straining the outlook for tourism-dependent economies. For 2022, the growth of the region is expected to slow down to 3.8 percent.
As for individual economies in the Western Balkans, the EBRD has increased Montenegro’s growth forecast by 3.5 percentage points compared to September to six percent for 2021, in Northern Macedonia it expects growth of four percent, for BiH projects 3.5 pecent, while leaving forecasts for Albania and the Kosovo economy unchanged at four percent.
EBRD Chief Economist Beata Javorcik said that although the revised forecasts give reason for optimism, there remains great uncertainty about the movement of Covid-19 Delta strain, which poses a particularly high risk for countries with less progress in vaccination, as well as for economies that are they rely heavily on international tourism, RTS reports.
