Serious risk of slower GDP growth and accelerating inflation in Serbia

“A sharp slowdown in GDP growth and an acceleration of inflation are expected in Serbia,” the Faculty of Economics professor, Milojko Arsić, said at the presentation of the new issue of the Quarterly Monitor (Kvartalni Monitor) bulletin. Arsić also said that the external trade deficit has increased and that the only area where the state still has a solid performance is the labour market.

“It is quite certain that the increase in interest rates will slow down the economy’s growth even more,” the professor said. Arsić estimated that inflation will be higher and last longer than expected.

He also explained that the war caused supply disruptions, but also that there are also systemic reasons, namely fiscal and monetary expansion. “I expect inflation to continue until the second half of 2022. It is certain that to reduce inflation, the state will have to implement restrictive fiscal and monetary policy measures, raise interest rates, reduce the quantity of money in circulation and reduce the fiscal deficit. We expect to end the year with 12 percent inflation,” he said.

The professor also said that inflation also depends on what Serbia will do with energy prices, which have risen significantly less in the country than in the EU. “If we increase gas prices in Serbia to match those the state pays at import and harmonize the price of electricity with the actual costs, that would further up the inflation,” he went on to say, stressing that it is up to the government to choose whether to allow higher inflation or go deeper into debt.

Professor Arsić pointed out that capped prices in the energy sector lead to a relatively large increase in liabilities, mainly for public enterprises like Srbijagas and EPS.

Responding to a journalist’s question about Eurostat’s assessment that Serbia has the most expensive food and non-alcoholic beverages in the region, Arsić assessed that that was expected, because prices are linked to the level of development. “We are the most developed country in the Western Balkans, which is the least developed part of Europe. The consequence of this is that our prices are slightly higher in most areas than in other countries in the region,” he said.

(Euronews, 23.06.2022)


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