The World Bank:”Serbia at risk of high inflation, growth 2%”

Even though some acceleration of economic activity is expected in the second half of the year, results from the first half of the year suggest that annual GDP growth in Serbia in 2023 will be around 2 percent, said the World Bank.

The risks to Serbia’s baseline macroeconomic outlook that could materialize in 2023 include high inflation, and high levels of public debt because of which the scarce public investment resources should be prioritized towards projects with high economic and social returns.

“Inflation has started to decline, but it is still among the highest in Europe. It is expected that it will return to the NBS (National Bank of Serbia) target band in mid-2024,” reads the World Bank’s regular economic report for the Western Balkans.

Fiscal performance has been better than expected, with a lower-than-anticipated deficit, thanks to a strong performance of revenues, while public debt has plateaued at around 56 percent of GDP, said the World Bank.

“The CAD will be lower than expected in 2023, at about 2.5 percent of GDP, and the strong inflow of FDI (foreign direct investments) continues. As a result, foreign currency reserves have increased to a record high,” reads the report.

The World Bank noted that, while growth projections over the medium term (2024-2026) remain unchanged, those are still below potential growth rates. This, it said, underlines the importance of structural reforms to accelerate growth in potential output.

“A possible new source of growth could be FDI in high value-added sectors, but there are risks too, in particular those related to SOEs (socially-owned companies), both in terms of the impact of SOEs on fiscal balances and on market competition,” said the World Bank.

Economy slowing down

The report reads that the Serbian economy grew slower than expected in the first half of 2022 and that the same trend continued in the first half of 2023.

“However, in mid-2023 the construction sector started to recover, and some agriculture sectors (wheat and corn production in particular) scored better than expected results. Considering the impact of these factors, it is expected that growth will accelerate in the second half of 2023 thus leading to a growth rate of 2 percent for the year as a whole. Going forward and over the medium term, it is expected that growth will be around 3–4 percent. These are rates that are below Serbia’s potential and any acceleration in growth will be dependent on structural reforms,” reads the report.

(Danas, 20.10.2023)

This post is also available in: Italiano

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