EC: Subdued economic growth in Serbia due to high inflation

The part of the report that refers to Serbia reads that, despite reduced trade dynamics with Serbia’s main trading partners in the European Union (EU), the contribution of net exports to growth is expected to improve due to decelerating imports and increased export performance supported by recent foreign direct investment in the tradable sector.

GDP growth in 2024 is projected to be mostly driven by private consumption and some pick-up in investment. The economic expansion is however forecast to remain more than a percentage point below its pre-pandemic rate that was somewhat above 4%, reads the report.

It notes that, following a strong rebound in 2021, the expansion of the Serbian economy decelerated substantially in 2022, to 2.3 percent.

Given Russia’s continuing war of aggression against Ukraine, the EC cautions that the growth outlook is subject to a high level of uncertainty while risks appear to be tilted downside.

It also notes that higher or more persistent inflation than currently projected could further weaken purchasing power and thereby weigh on consumption and real growth more than currently anticipated.

A deeper-than-expected slowdown in Serbia’s main trading partners, particularly in the EU, could dampen net exports compared to the baseline.

On the other hand, increased nearshoring of production could have beneficial effects on foreign direct investment and exports in Serbia.

At the same time, the EC forecasts that, after an expected peak in spring 2023, inflation is projected to decelerate, partly due to base effects, from mid-2023 onwards, leading average annual inflation to broadly stabilize in 2023 and to return to single digits in 2024, supported by the effects of international and domestic monetary tightening and favorable commodity price developments.

The report reads that, following the fall to 9.4 percent in 2022, the unemployment rate is projected to continue falling in 2023 and 2024, albeit at a more moderate pace.

The EC said that the deficit is forecast to gradually decrease in 2023 and 2024 from the 3.1 percent of GDP in 2022.