In the last five years, from 2014 to 2018, according to data published by the Vienna Institute for International Economic Studies, Serbia’s economic growth has been greater than just three countries in Central and Eastern Europe – Ukraine, which has been in decline during this period, Belarus, which has stagnated and Russia, which under sanctions has seen growth of only half a percent annually.
Serbia is ahead of these countries, with annual growth of just two percent over the past five years.
A mitigating circumstance for our country is that the fiscal consolidation, reduced spending, salaries and pensions, and increased taxes were implemented during that period.
As a less developed economy than the EU average, Serbia needs faster economic growth than the EU in order to at least begin to reduce its backlog. Instead, in the past five years, we have had twice as lower the annual growth of 11 Central and Eastern European (CEE) countries, and lower (though minimal) growth than the Eurozone and the EU average, which grew annually at a rate of 2.1 percent.
Last year, Serbia’s economic growth accelerated to 4.4 percent, but this is just 0.1 percentage point above the average of CEE countries that are also members of the European Union. In 2018, the EU saw a growth of two percent. Serbia’s faster growth than the European economy is likely to continue this year, with 3.6 percent forecast for Serbia and 1.3 percent for the EU. However, when we look at the ratio of Serbian standards to the EU average, it is only then that we can see how long we need to have significantly faster growth than the European average to at least approach them.
Specifically, in 2018, Serbia’s GDP per capita, which takes into account purchasing power parity, was only 39.7 percent of the EU average.
By this parameter, the poorest country in Europe is Ukraine, which is only 21 percent of EU standards. Moldova is slightly better off at 22.3 percent of the average, followed by countries in our region: Albania at 30.7 percent, BiH at 31.7 percent, Northern Macedonia at 37.5 percent and then Serbia at 39.7 percent.
It is depressing that we were at the same distance from the EU in 2011, which means that for almost a decade we have been tapping into a place at a low standard.
From 2000 to 2011, Serbia raised the standard relative to the EU from 26.7 to 39.7 percent, or nearly half. However, we have been stagnant ever since. On the other hand, some countries in the region have made much more progress. For example, Estonia and Russia have doubled the standard compared to the EU in 18 years. Estonia’s start position was 41.3 percent of the EU average, now 82.4 percent, while Russia moved from 30.2 percent in 2000 to 63 percent of the EU average.
The CEE country that came closest to the EU standard is the Czech Republic, which in 2018 was at 91.1 percent of the European Union average. Otherwise, the standard of 11 CEE countries, new EU members, is at 71 percent of the EU average, which is above the standard only of Greece of all old EU members.
Finally, the Institute has recorded real wage developments in the region over the last five years, and there is a big difference in trend between the former Yugoslavia countries and the EU member states of CEE.
For the past five years, from 2014 to 2018, for example, in Montenegro, even in real terms, salaries were reduced by 0.3 percent annually on average, while in Albania they grew by only 0.5 percent and in Serbia by only 0.6 percent annually. In the countries of the former Yugoslavia, Croatia had the highest annual wage growth of 2.3 percent and Macedonia of 2.4 percent. In the same period, Romania increased real-time earnings by as much as 9.9 percent a year, trying to resist emigration. Bulgaria also had high wage growth rates of 7.4 percent, Hungary 6.3 percent, and the Baltic countries between 5.5 and 5.9 percent annually.
In the case of Serbia, this is certainly due to the reduction in public sector wages and pensions in 2014, which lasted throughout the period measured by the Vienna Institute. However, even the rich countries of the euro area had higher annual earnings growth than Serbia by 50 percent.