The slowdown in the domestic economy has begun

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Our economy began to slow down in the last quarter of last year, which intensified in January 2022, and this is primarily due to a large decline in electricity production by 20 percent, but also a decline in manufacturing in January compared to the same period last year by one percent. it was said at the presentation of the Quarterly Monitor of the specialized bulletin issued by the Fund for the Development of Economic Science.

According to Milojko Arsic, editor of the Quarterly Monitor, a comparative analysis with other Central and Eastern European (CEE) countries shows that no one else had a decline in the manufacturing industry in January, indicating some internal problems and possibly due to inflation.

Last year, Serbia had a high economic growth of 7.4 percent, and in total in the last two years it had the highest growth in CEE. However, if you look at the period from 2012 to 2019, it is at the bottom of this region in terms of economic growth. In the entire period from 2012 to 2012, it is in sixth place, just above the CEE average.

However, 2022 started badly, with the war in Ukraine, which, according to Arsić, will certainly have a negative impact on the economy, although it is difficult to estimate how much.

“It is certain that economic growth will be below the forecasted 4.5 percent.” There were projections that inflation will start falling from the second quarter, but we will have a rise in prices due to rising prices of raw materials. We will have a fiscal deficit higher than planned, and that might have happened without the crisis due to some spending that was not planned in the budget. “Apart from that, the state will have to cover the losses of public companies from energy, EPS and Srbijagas, whose inputs are getting more expensive and their prices are limited,” Arsic said, adding that in January, for the first time in several years, a budget deficit was recorded. that that month usually ends in a plus and that it is a consequence of pre-election spending.

There are several channels through which the consequences of the war will be transferred to the Serbian economy. This is primarily an increase in energy prices.

“The government is not responsible for the growth of energy prices, which began before the crisis in Ukraine, but it is responsible for the increased import of electricity and gas due to poor management of public companies. There was no coal in EPS, there were accidents, and the expansion of the natural gas storage was delayed, and what we had reserves was used earlier for the production of electricity in thermal power plants to reduce the cost of imported electricity, “he said.

The second channel through which the Ukrainian crisis will hit us is the reduction of exports to Russia and Ukraine, which amounted to one billion euros last year. On the other hand, we will be affected by the weaker growth of European economies, which are also affected by sanctions against Russia. Also, the effects of breaking the production chains in which raw materials from these two countries participate will spill over. In the end, the general climate may affect the decline in foreign investment, although Arsic notes that there are indications that some investors could move production from Russia to Serbia.

For example, at first glance, a positive consequence for our economy could be the growth of prices of agricultural products, because we will export them at high prices, but since we are an open economy, international prices will spill over in our country, which will reduce the standard of our citizens.

The state is taking over the losses of EPS and Srbijagas

According to Arsić, the government transferred some of the effects of the crisis from consumers to taxpayers.

This refers to the limitation of energy prices, due to which public companies, EPS and Srbijagas will make losses, and which the state, ie in the end taxpayers, will have to pay.

“The government had two options: to allow costs to be fully passed on to consumers, businesses and households, which would mean a significant increase in electricity and gas prices. It is unpopular, and also not economically good, because companies that use a lot of energy would suddenly become unprofitable and bankruptcies would occur. Another option, chosen by the government, is to freeze gas and electricity prices. The price of this is the growth of losses of EPS and Srbijagas, which will eventually be transferred to taxpayers. It is economically positive that in this way, by increasing the public debt, the blow is dragging on for a longer period, said Arsić, Danas writes.

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