Vienna Institute: No economic growth in Serbia if war in Ukraine continues

Jovanovic said the Institute has two scenarios for Serbia – if the war ends soon economic growth will stand at 3.6 per cent and inflation at 10 per cent, while the pessimistic scenario is if the war in Ukraine lasts until the end of the year or longer.

“In the pessimistic scenario we projected inflation at 14 per cent in Serbia this year with zero economic growth,” said Jovanovic, adding that the Institute did not consider a scenario of economic trends in Serbia if the war spills over to next year.

Jovanovic said control of staple food prices in Serbia was a good solution in the current crisis.

In November last year, before the prices were frozen, Serbia’s inflation stood at 7.5 per cent and was the highest in the region while in May this year it was 10.4 per cent, which is one of the lowest in the region, said Jovanovic.

He explained that the Serbian budget’s “capacity” can withstand an increase of the minimum wage, pensions and salaries in the public sector, which has been promised by Serbian President Aleksandar Vucic.

He said the Serbian Government is a good tactician, that it knows how to make the right moves but that it is also the weakest link in Serbia’s economic policy because it easily puts itself in an unfavorable position.

“During the pandemic, even this year, in this crisis caused by the war, the government is taking relatively good anti-crisis measures and this is why Serbia has the best economic results in the region and among the best in Europe, however, it is doing practically nothing to address deep structural changes in the economy and society,” Jovanovic said.

“The energy reliance on Russia is too great and no attempts are being made to reduce it. Institutions are sluggish and nonfunctional, corruption is high, rule of law is a problem and we have not recently seen any reforms regarding these issues. The poverty rate is among the highest in Europe, almost every fourth person in the country is poor, class differences are also huge, and that is not talked about at all,” Jovanovic said.

The Serbian Government has no measures of support for domestic companies or innovations, its focus is on foreign investments and it has no industrial policy, said Jovanovic adding that these are problems that the Government needs to work on in order to increase the economy’s resistance to crises.

He said Serbia will benefit in the short term from refusing to impose sanctions on Russia, but deciding to impose them would not mean that it would not run out of gas, “just like Austria didn’t.”

Serbia would just pay a higher price for gas. This would probably increase inflation because all the prices would go up, that would increase the budget deficit so the public debt as well because the state would have to intervene to mitigate the consequences, said Jovanovic, adding that this is not that big of a problem for European Union (EU) countries because they have the support of the EU budget but it is a problem for small countries that are not a part of the EU.

In this situation, he said, Serbia should ask the EU for additional assistance so it could pay the economic price of imposing sanctions on Russia.

“That is why this ‘sitting on two chairs’ has not just political but also economic arguments, and that is something everyone needs to understand,” Jovanovic said.