Improvement Won’t Come Quickly

It is projected that Serbia’s economic growth for this year will fall to two per cent of GDP due to a more stringent monetary and fiscal policy, high inflation, weak foreign demand and unfavourable conditions internationally for borrowing. Given these challenges, what measures could the government consider to boost economic growth and deal with the current situation?

First and foremost, the population shouldn’t be excessively weighed down by the burden of inflation, particularly given the fact that the drop in purchas- there is less left for daily personal consumption, which leads to domestic demand falling further. ing power is felt the most among the part of the population that has below-average earnings, which also happens to be the majority of the total population. Just take into account the fact that approximately twothirds of GDP is spent on household consumption.

It is extremely important for the Government to protect macroeconomic stability, which forms the basis of the country’s credit rating, while it is crucial to ensure the continued arrival of foreign direct investments, which should be directed more towards areas that provide higher added value.

When it comes to the population’s standard of living, we have several negative indicators that testify to the pressure on the population, and those are the decline in the real purchasing power among the majority of the population, falling retail turnover and increased unemployment, which now totals 10.1%.

We hope this crisis will not deepen and that Serbia, like other European countries, will have higher growth rates in the coming years than has been the case this year, but it is essential for this growth to be at least 3% annually in order for the population to feel an improvement.

Individual analysts consider it necessary to allow inflationary pressure to abate of its own accord, i.e., for the benchmark interest rate not to be raised too much, which would also be felt the most among the aforementioned segment of the population. And now you have a situation in which many of those who’ve been overburdened with increased obligations to repay mortgages are making that obligation their priority, and consequently

What could the best- and worst-case scenarios that we face look like? As things stand now, the best scenario would be the realising of the forecast of the National Bank of Serbia, according to which inflation will half by the end of 2023, thus amounting to around 8%, and will return to the target of around 3% by the end of next year.

It would be very bad if the cancelling of the agreement on the export of Ukrainian grain, as well as a potentially harsher winter, lead to the renewed intensifying of inflationary pressures, which would also be imported to Serbia and would disrupt efforts aimed at curbing inflation and additionally impact negatively on the purchasing power of the population, while also reflecting negatively on other macroeconomic indicators.

Branimir Jovanović Economist at the Vienna Institute for International Economic Studies