by Marija Savić, Director of the Economic Research Department of Banca Intesa
“Caution, heavy fog ahead”. This is how Goldman Sachs analysts vividly described their expectations for 2023. Today, at the end of a year marked by slow economic growth, high inflation, continued monetary tightening and new geopolitical conflicts, it seems that the road ahead is not any clearer.
Although the outlook for global economic growth in 2024 remains bleak and is projected to fall to below 3%, the general consensus is that the hardest time is behind us. Projection risks are asymmetric downwards and include further deepening of the crisis in the construction sector in China, a high level of indebtedness of certain developed countries in an environment of high interest rates, as well as the intensification of geopolitical conflicts. China, which has been the driving force behind global economic growth for decades, faces serious challenges including deflation, rising youth unemployment and a deepening crisis in the real estate sector, as confirmed by Moody’s recent decision to downgrade its outlook on the Chinese government’s credit rating from stable to negative. The still-vulnerable American economy is expected to have a “soft landing” instead of a mild recession and anaemic economic growth in Europe from this year will maintain its pedestrian pace in 2024, given the lagged effect of the European Central Bank’s most aggressive tightening of monetary policy since the creation of the Eurozone. which has yet to be fully transferred to the real economy.
Bearing in mind that the Eurozone is the most important trade partner of the countries in the region, its slow economic growth will also affect our environment, which consequently expects not spectacular, but stable economic activity in 2024, with the important task of restoring price stability. Although inflation in the region has been on a downward trajectory in recent months, it is still above the target values and calls for caution in conducting monetary policy.
When it comes to Serbia, since GDP growth in the third quarter of 3.6% exceeded market expectations, most financial institutions revised their growth projections upwards to around 2.5% this year. With the reduction of global inflationary pressures and a slight recovery of external demand, as well as the expected realization of planned infrastructure projects, economic growth is predicted to accelerate to over 3% in 2024, which is still below the pre-crisis level. Aided by the effects of the previous tightening of monetary policies, the slowdown in imported inflation, as well as the base effect, has caused annual inflation to be on a downward trajectory since March, when it reached its highest level in 2023, at 16.2%.
Inflation is expected to return to the target range in Serbia in mid-2024, while it is expected to reach the targeted level of around 3% by year-end. After 15 months of continuous gradual increase in the benchmark interest rate, the National Bank of Serbia has not raised its base rate in the last five meetings, which has been at 6.5% since July and is expected to remain unchanged in the coming months, while in the case of renewed inflationary pressures, the central bank used other mechanisms such as reverse repo transactions. The beginning of the gradual fall of the benchmark interest rate is expected in mid-2024, taking into account the projected return of inflation to the target limits.
The general conclusion is that in 2024 we can expect slightly faster economic growth and further easing of inflation, with a gradual and slight reduction in benchmark interest rates. As BlackRock put it: “Recent macroeconomic activity looks like a super expansion, but zooming out, economic growth remains below pre-pandemic levels.”
We are entering 2024 with cautious optimism.
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