European Commission raises forecast of Serbia’s growth in 2018 and 2019

The European Commission has raised the forecast of Serbia’s GDP growth for 2018 to 4.1% in its “European Economic Forecast” autumn report, from the 3.3% forecast in the spring report published in May.

The EC also raised the expected economic growth of Serbia in 2019 from the previous 3.3% to 3.8%, and the same growth is expected in 2020 as well.

According to the EC, Serbia’s public debt will amount to 56.4% of the GDP this year, drop to 54.1% next year and then to 52.1% in 2020.

The report, published on the EC’s official site, says that the economic growth of Serbia shifted up a gear to nearly 5% (y-o-y) in the first half of 2018. The outlook appears strong and growth should remain vibrant despite the forecast slight moderation.

– Investment is expected to be robust and domestic consumption to receive a further boost from rising employment and income. Financing conditions and fiscal policy are forecast to be supportive of growth – it is said in the section about Serbia.

The report, however, says that strong domestic demand and worsening terms of trade are set to push up inflation and external imbalances.

It is said that 2018 is projected to end with another general government budget surplus. This strength has allowed the government to start unwinding temporary pension cuts, which were introduced at the height of the crisis. Part of the fiscal space in 2019 is planned to be used to increase public wages and boost capital expenditure, the report says.

While the budgetary stance is projected to be supportive of growth, the overall budget deficit is nevertheless forecast to remain close to balance. This, the EC says, would ensure further reduction of government debt to levels approaching 50% of GDP by the end of 2020.

The good fiscal performance is expected to be further supported by the implementation of long-standing reforms of the tax and public administration, and by completing the restructuring and privatization of major state-owned enterprises. These and other key structural reforms, including strengthening of the system of fiscal rules, are also at the center of Serbia’s new agreement with the IMF.

The growing economy is expected to stimulate further employment gains and unemployment is forecast to fall to its lowest level in decades. In the report, the EC says that the unemployment rate in Serbia is forecast to be at 13.1%, that it will drop slightly to 12% in 2019 and then to 10.9% in 2020.

When it comes to inflation, it is forecast to be at 2.1% this year, 2.9% in 2019 and 3% in 2020. The current account deficit is forecast at 5.9% of the GDP in 2018 and 7.4% and 7.9% in 2019 and 2020 respectively.

EUROPEAN COMMISSION Bruxelles

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