Economic activity continues to recover, inflation is accelerating, employment is growing solidly, but real wage growth has slowed during the year due to rising prices. The deficit in world trade has increased, but the inflow of foreign capital is high both on the basis of foreign direct investments and on the basis of borrowing abroad. The results of the Serbian economy in 2021 basically follow European trends, with both positive and negative results being more intense, said yesterday Milojko Arsić, professor at the Faculty of Economics in Belgrade, presenting a new issue of “Quarterly Monitor” published by the Faculty of Economics and the Fund for the development of economic science.
“It is estimated that the GDP will grow by seven percent this year, which will make Serbia one of the five or six most successful countries in Europe. Cumulatively, in two years, only Ireland and Turkey have higher economic growth than Serbia. GDP growth in 2022 is currently projected at around 4.5 percent. Our forecast is based on the expectation that the largest part of the Serbian economy in 2022 will return to the usual pre-crisis growth rate of about four years, and that an additional increase in GDP growth to about 4.5 percent will bring continued accelerated recovery such as transport and tourism, which have not yet reached the pre-crisis level, as well as agriculture, which in the case of the average season will have a relatively strong growth due to the comparison with the dry year 2021. Identical GDP growth of 4.5 percent in 2022 was forecast by the government, as well as the IMF and the European Commission,” stated Arsić.
It is expected that the main drivers of growth in the next year will be public and foreign investments and exports, and that domestic private and state current demand will contribute modestly, because their real value will be significantly reduced by high inflation. A possible attempt by the government to stimulate the economy through a special increase in salaries, pensions and other components of state spending, in the current circumstances, would further stimulate inflation. In the next year, nominal wage growth of seven or eight percent can be expected, while real wages could be increased by about two percent, which roughly corresponds to productivity growth. The largest part of the nominal increase in wages in 2022 will be devalued by inflation, through which incomes are balanced with production.
Arsic predicts that inflation will amount to more than eight percent this year, and that it will average five or six percent next year.
In addition to high inflation, which enters 2022, energy prices are also high, and there are also problems in the operations of large public and state-owned companies such as EPS, “Srbijagas”, “Telekom” and “Air Serbia”. Interest rates are also expected to rise. In addition to all that, it is unknown how the health crisis will continue and what kind of further economic recovery the European economies, with which the Serbian economy is closely connected, will have.
“Therefore, in such an environment, economic policy should have as its primary goal in 2022 the preservation of macroeconomic stability. Fiscal policy should move towards a significant reduction of the budget deficit while maintaining high public investment, while monetary policy should gradually and controlledly reduce its expansion and turn to restrictiveness. If these conditions are met, inflation could be curbed during 2022, with solid economic growth of around 4.5 percent and a sustainable current account deficit. The sustainability of public finances could be called into question if relatively large and economically unprofitable public investments are financed by state borrowing,” Arsic said.
In order for Serbia to use the potentials of its own citizens and the natural environment, it is necessary to make a substantial turn towards establishing the rule of law and combating corruption. In addition, the progress of the economy requires the permanent maintenance of macroeconomic stability, the construction of modern infrastructure, and the improvement of the quality of education. The policy of a strong dinar, which contributed to the fall and stabilization of inflation, could reduce the competitiveness of the Serbian economy and lead to unsustainable growth of external deficits. The sustainability of public and external debt depends on the stability of the dinar exchange rate, and the stability of the exchange rate is maintained by a large inflow of foreign capital. If, for any reason, there is a sharp decline in foreign capital inflows, macroeconomic stability and economic growth would be severely shaken, Politika reports.
