“The toughest period is most likely behind us; the level of interest rates has reached its peak, and unless there are some revolutionary geopolitical changes, we can expect a decrease in them,” said Professor Nikola Stakić to RTS. He predicts that inflation could be at 5 percent, while the GDP growth could be around 3 percent.
“The past two years, the global economy, including the Serbian economy, faced significant challenges primarily due to wars that caused high inflation and accompanied high-interest rates. The good news is that inflation in the US and Europe has started to decrease.”
“Professor Nikola Stakić from the University of Singidunum told RTS that the finance sector has the highest degree of globalization ever.
‘The speech of the Federal Reserve Chairman, or the way he says something and the content of his speech, significantly affects two macroeconomic indicators – primarily the level of interest rates in America, followed by what happens in the Eurozone, and finally, how we as a country will react to circumstances,’ Stakić explained.”
Interest rate differential
“Money, like any other commodity, has its supply and demand. Depending on supply and demand, its price is dictated, which is reflected in the level of interest rates.
“Our country and our market are much larger than neighboring states, and there is a much higher level of demand. One should not only look at one side of the coin but also consider the so-called interest rate differential – the difference between the active and passive interest rates. Therefore, perhaps from the perspective of savers, interest rates in Serbia are by far the highest in the region, but on the other hand, interest rates on certain types of loans are also the most expensive when taking out a loan,” said Stakić.
What to consider from the perspective of a bank
He adds that from the bank’s perspective, one should look at different metrics, different indicators. One of them is the mentioned difference between those two interest rates, but also the return that banks have on the capital they lend and the assets they hold, which may be somewhat higher than in other countries in the region, but not excessively high for banks to significantly lower the prices of some products.
Whether the economy is regional or global, it moves in cycles, in business cycles, and it’s not uncommon to see a period of two to three years quite expansive, followed by a period of fairly restrictive monetary policy.
“However, in the last three to four years, we’ve really had a roller coaster of incredible systemic risks that happened to us starting with COVID, geopolitical conflicts, inflation, everything that has befallen us,” Stakić pointed out.
Economics is indeed a social science, but it also involves the use of various mathematical-statistical methods and models to predict certain macroeconomic circumstances.
The political factor in the economy
“The political factor should also be taken into account where, in countries holding elections, particularly in election or post-election years, fiscal policy gains much more significance compared to monetary policy. This applies especially to public works, government spending, and tax policy,” said Stakić.
He points out that this year, elections will take place in over 50 countries, comprising nearly 40 percent of the global gross domestic product, so this geopolitical factor “cannot be overlooked.”
Stakić mentions that the Federal Reserve governor tends to be very conservative in their approaches, while the market is the one that speculates on the number of interest rate cuts in 2024.”
The decline in interest rates, America is the most pragmatic
“What citizens should know is that the most likely scenario is that the hardest period is behind us, both in Europe and America, as the level of interest rates has reached a sort of limit, and unless some major revolutionary changes occur, especially geopolitically, we can expect a reduction in interest rates,” says Stakić.
According to him, the typical dynamic is that America is the first to be the most pragmatic and proactive in that regard, so America will probably be the first to start.
“The situation in Europe is slightly different, primarily because it’s not a coherent and unified fiscal market, and Europe is facing some real economic issues. It’s most likely also officially in a recession when the data for the fourth quarter comes out,” explained Stakić.
He notes that even the largest European economy, Germany, is facing issues.
He further states that inflation increased by half a percent in Europe in the last month as certain subsidies for food and energy were lifted.
Can we expect a drop in inflation
Professor Stakić points out that first, “we go” with inflation, to see how inflation will behave, and accordingly, monetary policy will react.
“Predictions are that by the middle of this year in our country, inflation will return close to the upper limit of the corridor, up to 5 percent. By July, we could expect levels of up to 5 percent, and why not even lower levels by the end of this year because we had high growth rates in previous years, so our base is high in that sense, and statistically, inflation will show a decline in the coming period,” emphasized Stakić.
Professor Stakić forecasts that it would be good for inflation to be five percent, if not lower, real GDP growth three percent, and the benchmark interest rate to be lowered in two or three instances.
“There will be a fiscal deficit, but in a tolerable and limited amount,” concluded Stakić.
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