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SERBIA – MACRO OVERVIEW

SERBIA – MACRO OVERVIEW

 Instead of the forecasted economic growth in a range between 3.0-3.5%, a modest rate of 1.9% was achieved last year; the elimination of budget deficit and the reduction of public debt was the greatest progress in economic policy management.

 Last year, the domestic economy achieved a significantly slower growth rate than expected, largely due to unfavorable weather conditions for agricultural production, but also due to the absence of structural reforms in public enterprises provoked by much worse management. On the positive side, a budget surplus contributed to a large reduction in public debt.

 Domestic economy growth accelerated in the second half of the year, but it was not enough to reach projected growth rates, which generally ranged from 3.0 to 3.5%. The Serbian economy recorded GDP growth of 1.9%, which is below comparable economies in its environment.

 The consolidated government budget recorded a surplus (1.2% of GDP), which, with the strengthening of the exchange rate of the dinar, contributed to the strong reduction of public debt to 61.5% of GDP. These results led to the credit rating raise by most rating agencies, and the fall of the country risk premium below 100bp. Inflation last year moved to the center of the targeted NBS corridor (3%) and relatively low level for domestic conditions, which allowed further easing of the NBS monetary policy.

 In the current year, economic activity is expected to accelerate, partly due to the neutralization of negative factors from last year (lower electricity production and poor agricultural season). In order to achieve the continuity of high and stable growth rates, it will be necessary to implement long-delayed structural reforms in the public sector, as well as to increase public investments that have been at a low level for years.