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bne October 2021 Companies & Markets I 13
Future growth
Growth in Q1 2021 of 1.7% y/y was “underpinned by
a strong recovery in the construction sector, but also by growth of industrial output and an increase in trade, transport and tourism activities,” the EBRD said. Y/y growth then accelerated sharply in Q2 as Serbia recovered from the low base the same time last year.
In June 2021, turnover in industry in Serbia increased by 31.8%, compared with June 2020, and by 32.9% relative to the 2020 average, the statistics office said.
Retail trade in Serbia increased by 24.2% y/y in the second quarter of 2020, according to the Statistical Office of the Republic of Serbia. There was also a 20.4% jump compared to the previous quarter.
Growth forecasts for Serbia this year are around the 6% mark. In mid-August, the National Bank of Serbia (NBS) raised its projection for the country’s GDP growth this year to 6.5%, from the 6% it projected in May. Serbian Prime Minister
Ana Brnabic told Prva TV in June that Serbia will end 2021 with the “best economic results in Europe”, forecasting the country's economic growth could be as high as 7%.
The IMF is somewhat more pessimistic, expecting growth of around 6%, but it warned of high uncertainty about the path of the COVID-19 pandemic, and the need for accelerated structural and institutional reforms to ensure inclusive and sustainable growth in the medium term.
Fitch Ratings has revised upwards its 2021 growth forecast to 6.3%, citing the strong rebound in domestic demand in 1H21. “There has been a fast Covid-19 vaccination rollout,
at 86 doses per 100 people, but recent progress has stalled due to vaccination scepticism, and the potential for economic restrictions to contain a new wave represents a risk to our forecast,” the rating agency said in September.
Looking further ahead, the World Bank says: “Over the medium term the economy is expected to grow steadily at 3.5-4% annually, similar to levels before the pandemic, as the economies of main trading and investment partners recover fully from the pandemic.”
The IMF forecasts that in the medium-term growth will gradually converge to its potential of 4%. This will be “supported by strong FDI, continued high public investment, and an assumed recovery in trading partner countries”, the fund said.
Fitch anticipates GDP growth will moderate to 4.4% in 2022 and 3.9% in 2023. The rating agency says the forecast is “slightly above our assessment of the trend rate, which is constrained by unfavourable demographics and weak total factor productivity growth”.
The NBS has revised the medium-term economic growth projection from 4% to the range of 4-5% – again more
optimistic than the international financial institutions –
a move it said was based on an analysis of planned capital projects in road, railway, energy and utility infrastructure
in the next ten years and their direct and indirect effects on other parts of the economy. The bank’s central projection for GDP growth over the medium term now stands at 4.5%, while overall risks to the projection are judged to be symmetric.
The IMF argues that further structural and institutional reforms are needed in Serbia. This would underpin high, inclusive, and greener growth, as well as accelerate income convergence with the EU. On top of this, developing the local capital market would support medium-term growth.
One politically sensitive issue that Belgrade has been trying to tackle for some time is the reform – and potential privatisation – of state-owned enterprises (SOEs). As they are some of the country’s major employers, this has happened in fits and starts. The IMF stressed the importance of strengthening the governance and management of SOEs and implementing structural reforms.
The World Bank noted a deterioration in the performance of some state-owned enterprises such as Telekom Srbija and Air Serbia – the latter being hit particularly hard by the coronacrisis – on top of other SOEs that were already financially troubled.
Inflation
Inflation is rising as in other emerging Europe economies. Annual inflation in August in Serbia was 4.3%, nearly triple the low of 1.1% in January.
At its latest rate-setting meeting in August, the NBS kept the key policy rate at 1.0%. The central bank noted that inflation has moved around the target midpoint (3±1.5%) since April. As in other countries in the region, higher y/y inflation relative to the previous quarter is mainly attributable to the low base for petroleum product prices from the same period last year, as well as to the higher cost-push pressures fuelled by the surge in the global prices of oil and other primary commodities in the previous months, the NBS stated.
However, many people believe that Serbia’s real inflation rate is higher than the official statistics show due to the increase in the price of foodstuffs, as reported by the eKapija portal.
Serbia inflation y/y
Source: Statistical Office of the Republic of Serbia
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