The Serbian economy is now growing more slowly compared to the region and the EU

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In 2022, Serbia will have a gross domestic product (GDP) growth of 2.5 percent, while next year GDP growth should be two percent, said Milojko Arsić, a professor at the Faculty of Economics in Belgrade and editor of the Quarterly Monitor.

“Serbia’s GDP growth this year is slower than the SEE countries, which grew by around 4.5 percent, and the entire EU, which grew by more than three percent,” said Arsić at the presentation of the new Quarterly Monitor.

The slower growth of Serbia’s GDP is, according to him, a consequence of the bad agricultural season, but also of problems in the production of electricity.

Arsić does not rule out that Serbia will enter the so-called next year. a “shallow recession” with a low and possibly negative growth rate.

“A shallow recession is possible, because already in the third quarter of this year, Serbia had a negative growth rate compared to the previous quarter, and that’s when the influence of the season is included. If this happens in the fourth quarter, Serbia would formally be in recession,” said Arsić and added that such a relatively short and not deep recession is possible in many EU countries, while for some it is forecast for the whole year, such as Germany.

According to him, in the first half of 2023, the results could be relatively weak, but they could improve in the second half of the year, so that the estimated growth of Serbia’s GDP would be two percent.

“The growth of the economy next year will be affected by several factors, starting with restrictive monetary policy, high inflation, lower growth in the EU, although there is a chance that the situation will improve in the second part of the year, and a good agricultural season would also help,” he said. 

Inflation at the end of the year between 15 and 16 percent

He also stated that the average inflation in Serbia this year will reach around 12 percent, and the inflation at the end of the year will be between 15 percent and 16 percent.

Arsić said that inflation in Serbia will have a downward trend next year, although it will still be high in the first half of the year.

Movements on the labor market, he said, were more inert and lagged behind other macroeconomic movements.

Positive growth in employment and real wages

According to him, positive growth in employment and real wages will be achieved throughout 2022, but with noticeable deterioration within the year.

Speaking about the labor market, he stated that it is estimated that for the whole of this year, registered employment will increase by about one percent, while total employment will increase by about three percent, whereby the growth of employment was almost entirely achieved in the first half of the year, while stagnates in the second half of the year.

According to Arsić, the year-on-year growth of wages for the whole year will amount to about two percent, but the real value of wages within the year decreases from quarter to quarter.

Deteriorated economic relations with foreign countries

“Economic relations with foreign countries have significantly worsened in the past part of the year. It is estimated that the deficit of the current balance this year will reach around 7.5 percent of GDP, which is the largest deficit in the previous 10 years,” Arsić said.

He added that the deterioration in the current balance of payments is largely due to the growth of the goods deficit, which increased by as much as 65 percent in the first 10 months.

Observed by products, the worsening of the trade balance is, as he said, mostly a consequence of the increase in the import of energy products, which is the result of the increase in their prices, but also in the imported quantities.

“Economic policies that were conducted during 2022 did in principle go in the right direction of increasing restrictiveness, but they can be rated as half-successful at best.” “The monetary policy was late with the increase in restrictiveness, after that there were several increases in the reference interest rate, and the year ends with a reference interest rate of five percent,” said Arsić.

The NBS continued to maintain a stable dinar exchange rate

As he reminded, the National Bank of Serbia (NBS) “also continued with its long-term policy of maintaining a stable exchange rate of the dinar, which now, in the conditions of high inflation, we assess as an appropriate policy.”

According to him, during 2022, the fiscal policy made certain steps towards reducing expansiveness, however, “those steps were still not that big, since the budget deficit remained relatively high in 2022, that is, it was reduced relatively modestly, from 4,1 percent from 2021 to around 3.5 percent of GDP in 2022.”

Arsić said that a greater adjustment of the fiscal policy in 2022 was prevented by the huge costs for financing the losses of public companies from the energy sector, Elektroprivreda Srbije and Srbijagas, and that more than half of the fiscal deficit from 2022 went to those purposes.

“The economy of Serbia will enter the year 2023 with prevailing negative trends – a declining trend in economic activity, stagnation in the labor market, high inflation and a high external deficit,” said Arsić.

What will depend on the results in the next year

The results in the next year, as he said, will significantly depend on the trends in the European economies, but also on the policies that will be implemented in Serbia.

He assessed that, due to great uncertainty regarding the development of the geopolitical situation, the macroeconomic forecasts for the next year are indicative and conditional and will probably be revised, N1 writes.

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