The economic year in Serbia was marked by economic recovery, inflation, and the energy crisis

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Is the topic of the year economic recovery? Or inflation? Or an energy crisis? At the end of the turbulent 2021, the FEFA faculty organized a traditional online conversation with the professors of that faculty, where analyzes and views of the current situation in economics and business could be heard.
Among them is Dusan Vujovic, former Minister of Finance and economist of the World Bank, who reminded of the forecasts of the International Monetary Fund, according to which 2021 is the way out of the crisis, and 2022 is the year of returning to a stable path of economic growth. Of course, assuming that there are no new waves of pandemics and locking up of economies.
“In the first phases of the pandemic in 2020 and most of 2021, states provided assistance to economies in order to preserve business and economic activity. All countries had mostly similar measures – linear aid and failed to distinguish between companies that have a future from those that took advantage of the crisis and state aid to survive. Now with the economic recovery a perfect storm has occurred. At the same time, we have the pressure of consumer demand and rising costs on the supply side, and this was joined by rising costs for raw materials and energy. Fiscal expansion is becoming a problem,” Vujovic said, adding that the global economy is in great danger of triggering all sources of inflation at the same time.
“In the last 20 years, there has been a division of labor. China and India have taken over the production of many things, and when that is paired with problems in transport, even where there is potential for the growth of raw materials, they cannot reach it,” he concluded.
Last year, global GDP was reduced by 3.1 percent, this year it will grow by 5.9 percent, and next year it is expected to grow by 4.95 percent.
Professor Nebojsa Savic, who is also the president of the Board of Governors of the National Bank of Serbia, points out that this year’s economic growth in Serbia will be just over seven percent, while a slowdown to 4.5 percent is predicted for next year.
“Our growth is primarily based on exports and domestic consumption, where the construction sector, driven by public investment, has contributed the most. Inflation-related issues remain open. Our inflation is mostly import inflation. At the moment, the dominant influence comes from the supply side, although in part we have pressure from the demand side as well. Demand can be influenced by measures, but there is little that Serbia can do with supply chains. I don’t think there will be inflation at the global level, we are talking about biflation, a phenomenon when some prices stagnate or even fall, and some others grow as energy sources,” Savic said, adding that year-on-year inflation in Serbia will be around 7.5 percent this year and the average annual inflation is about 3.5 percent.
Central banks have found themselves in a gap, on the one hand between the need for economic recovery, and on the other with rising prices,
Vujovic believes that most countries do not want to raise interest rates, because that affects economic activity. Also, a change in reference interest rates leads to changes in a number of other interest rates.

“And the Fund says control inflation, but don’t stifle growth. Central banks will have a delicate obligation to keep their foot on both the gas and the brakes at the same time. They must be careful that inflation does not become part of expectations, because when they start incorporating it into contracts and prices, it becomes a structural problem,” warns Vujović.
Professor Savić agrees with this, predicting that central banks will be extremely careful, that they will wait and monitor what will happen with the pandemic and supply chains.
“Will US and EU producers move production from China or will they stay there? For example, transport from China has increased four times. I think that central banks will generally look at raising interest rates as slowly as possible and will try to keep expectations at the current level. In our country, inflation is 7.5 percent, and the expectations of market participants for 24 and 36 months are 3.5 percent. Everything indicates that inflation will subside in six or seven months. Energy prices have been falling last year, and rising this year. Prices of unprocessed food have jumped due to the drought. That effect will disappear next year, and from the middle of next year we will return to the inflation target,” Savić said.
Another problem is the energy crisis. Goran Radosavljević, professor at FEFA, pointed out that until now, energy has always been taken as data, but it is transforming and becoming more risky for assessments.
“Energy disruptions are not new, but they are moving from the oil market to the electricity market. In Europe, the price is currently four times higher than the average of the previous 10 years. Also, gas is 16 times more expensive than last year’s average. There are also estimates that three times more energy is needed for the whole world to reach the level of development of Europe. It takes five times more energy to reach the level of development of Western Europe. Nobody knows where that energy comes from,” he says, adding that along with rising prices, there is a transition in Europe with the goal of reducing the share of coal in electricity production by 80 percent by 2035. In addition, a constant increase in consumption is expected.
“With the growth of renewable volatile energy sources, energy manipulation will be terribly complicated. In this transition, gas emerged as a solution, and it is specific in relation to oil. It cannot be transported en masse to the other side of the world. Gas prices differ in different markets, while oil prices on the stock exchange have two prices that are very similar. Diversification of energy sources is very important, and in a crisis it always turns out that a significant part of energy, especially electricity, should be with you. Energy security is returning as an important topic. The big question is in which direction Serbia should develop. My favorite are hydroelectric power plants, although they also cause some environmental problems,” notes Radosavljević.
On the other hand, Miloš Erić, a professor at FEFA, points out that Serbia has largely used hydrological capacities.
“There is still capacity in mini hydro power plants, but that is a controversial issue. Also, hydropower plants are not used for the basic supply of so-called baseload. Thermal or nuclear power plants are used for that. Today, decarbonisation is equated with electrification. Buying an e-car is considered environmentally friendly, but is it so if that car will run on electricity from coal at TENT. It is still better because the electric car is much more energy efficient, but the pollution is also centralized. It only happens around the thermal power plant and then you can do something with it,” he explains.
He also pointed out that the statement that if the price of energy in Serbia rises, we will lose foreign investors is worrying.
“We sell energy very cheaply, and we import it, even now that all the blocks of TENT have been erected. I am worried about such a position. We will need a baseload. It may be a thermal power plant, but we don’t have much quality coal left. Maybe while financing is still cheap, you should think about nuclear power plants that are ideal for baseload. The problem with NPP is financing, but its use is very cheap,” explained Eric, adding that the EU has adopted a carbon border adjustment mechanism, which actually means a tax on electricity from coal, which will be charged at the border with the EU.
“Dirty energy will be highly taxed and the sale of such electricity will not pay off. We have to look for an alternative to coal, because we don’t have that much quality coal. In the region, it is only in Kosovo,” he said, Danas reports.