The world found itself in a triple trap. At the beginning of 2020, the corona virus pandemic captured the world. Along with it, a great economic crisis began, the end of which is not in sight. In the spring of 2022, everything was “spiced up” by the war in Ukraine, which paralyzed Europe without energy sources and important raw materials…
In these gloomy frameworks, we try to answer the question – where is Serbia in this global mess, how much has it suffered economically and what awaits it in the foreseeable future?
Serious research on this topic, as far as we know, does not exist. True, it is difficult to collect and process all relevant data. Much more organized societies than ours prove that.
Admittedly, certain analyzes exist in the Serbian Chamber of Commerce, whose analysts monitor economic trends, as well as data published by ministries, the National Bank of Serbia, the Republic Institute of Statistics… They, however, point out that the price of the war in Ukraine that Serbia is paying very difficult to express, but despite that they point out that it is possible to see if you look at “macroeconomic aggregates and certain economic indicators”.
And what do all these indicators tell us? As Bojan Stanić and Nikola Vranković from the Chamber of Commerce tell “Ekspres”, Serbia is primarily and directly threatened by rising energy prices and disturbances in the food market. All of this influenced inflation, which started even before this crisis, to further accelerate and increase from the projected 3 to 4.5 percent to the current average of 14 percent.
And for ordinary citizens, this means that, on average, the prices have also risen so much, that is, that their “salary is shorter” than a month . And “average” is, of course, a relative thing, given that the things that most citizens buy every day have gone up the most – so, above all, food. For example, milk and dairy products have risen in price by up to 30 percent, just like agricultural products, fish…
“We conducted a survey on a sample of 1,600 companies, which tells us that the key problem for them today is firstly inflation, because their production costs are rising. In second place is concern about what the market realization will be, due to the decline in the purchasing power of the population. And in general, the problem is first of all the uncertainty that will be especially present during 2023 for the simple reason that this is a political crisis that we don’t know when or how it will end. The pandemic was a health crisis and it hit globally. But there was a global everyone’s interest is that it ends as soon as possible. In this situation, you already have calculations that it is in someone’s interest that the crisis last longer, and someone else’s interest in it lasting as short as possible. In general, however, there is no consensus that it should end as soon as possible. Someone is making money from that as well crisis”, says Bojan Stanić,assistant director of the Sector for Strategic Analysis of the PKS.
“There is a time gap between the appearance of the crisis in the West and its spillover here, because they are developed. But that’s why, when it spills over here, the crisis stays here longer. It won’t be deep, but it can last longer, so with that duration it can to reduce our production and export potential and, ultimately, to reflect, which is the most critical, on our already very negative demography through increased economic emigration”, says Stanić.
There is, however, an even greater danger, but the interlocutor of “Express” is convinced that this scenario will not occur. In short, that scenario would imply the withdrawal of foreign capital from Serbia, which could happen in two cases.
“The first case is that, under certain circumstances, a serious political crisis could occur in Serbia, which would further cause the withdrawal of part of foreign capital. The second variant would imply a deeper crisis in Europe, which would be a consequence of the war in Ukraine, due to which foreigners would decided to withdraw capital from Serbia. In any case, this would affect the decline in the value of the dinar compared to the euro, which has not happened in the last two years . The end effects would be a significant drop in the purchasing power of citizens, but also an increase in the unemployment rate”, says Stanić.
However, if we look at the current situation, according to our interlocutors, the supply of the market in Serbia, as well as exports, are still functioning quite well. There is a real drop in exports, when it comes to the amount of goods that went across the border in the first eight months of this year. But even that drop is quite small, around five percent.
On the other hand, that decline was compensated, and even more so, by the increase in the prices of exported goods, so the value of exports increased by as much as 20 percent compared to the same period last year.
The biggest drop in exports was to Russia (as much as 20 percent from March to August), but that was also compensated by the price, because Russia needs what it buys from Serbia, so it is ready to pay more for the goods. And this, among other things, covers the increased costs of transportation because goods to Russia no longer go via the shorter route via Ukraine, but the longer route via Poland.
“But it’s all obviously profitable for our businessmen, and at the same time they haven’t lost the market”, says Stanić.
A big problem, however, is the rise in energy prices. This is why the foreign trade deficit is increasing.
“In the first eight months, it jumped to 7.1 billion euros, and objectively there is a possibility that it will reach 10 billion. That would be around eight to nine percent of GDP, which is significantly more than in previous years”, says Nikola Vranković.
“External imbalance means a high foreign trade deficit. This means that the value of our imports is greater than the value of exports. And what is very important, we are less and less able to cover the value of imports with the earnings from exports. This means that we are becoming an increasingly large net debtor on the international market, increasingly more dependent on international circumstances. The economy is more indebted to foreign countries, the net external position of Serbia is deteriorating. As for the internal imbalance, it is the high rate of inflation, which is now 14 percent, and the target range was from 3 to 4.5 percent. According to some according to estimates, inflation will return to those limits only in 2024”, says Stanić.
On top of that, as stated by “Ekspresa” interlocutors, the risk premium for investing in government bonds of the Republic of Serbia on the international market has significantly increased and is at the level it was around in 2011. And this means that Serbia’s access to the international capital market is increasingly limited.
“You can borrow, but you would do so under very unfavorable conditions. That is why there was a need for this loan from the UAE of one billion dollars, and for that reason this stand-by arrangement that was agreed with the IMF is also needed om. Because when you have cheaper sources of financing, when you have control from the IMF, you also have greater trust from international creditors and foreign direct investors, who continue to decide on that basis what the macroeconomic situation is. And that currently maintains our credit rating. We’ll see what happens next”, adds Stanić.
“But the question for businessmen is what they will do if they have to reduce the consumption of electricity by 10 or 20 percent. This means that they will have less production or production with significantly higher costs. If you are an export company, you also delivered 100 percent of something to someone , and now you say you can deliver 90 or 80 percent, he can say that it doesn’t mean anything to him and start looking for a new supplier. That way you lose competitiveness due to higher costs, and at the same time you lose the market due to the inability to cover the previous demand”, warns Bojan Stanić.
It is also noticeable that economic growth is slowing down, not only in Serbia, but also in the whole of Europe.
“Last year, growth in the Eurozone was 5.5 percent. This year, it is 3.5 percent. Estimates for the next one are that it will be 0.5 percent”, says Stanić.
And that will inevitably affect Serbia as well. Economic growth in Serbia in the first quarter was around 4-4.5 percent. It is now down to 3.5, which is still better than the world average of 3.2 percent.
“On the other hand, according to the basic scenario, the slowdown will continue during 2023. It is possible that there will be an additional revision because the Eurozone slows down and announces a slowdown already during the fourth quarter of this year and the first quarter of next year, as the two most critical quarters. This slowdown in growth affects and on us, given that the EU is our largest foreign trade partner. It is a threat of recession, technical recession in the form of two negative quarters.”
And Professor Ljubodrag Savić from the Faculty of Economics in Belgrade says that it is really difficult today to make a useful analysis regarding the cost of the war in Ukraine, which Serbia is also paying collaterally.
“We would have to start from a comparison of the growth rates of the last three years and the average growth rates of the last five or six years. We could say that this is what has been lost. That is the roughest assessment,” says Professor Savić for “Ekspres”, citing how Serbia, just like the whole world, first paid the price due to the pandemic, and that just as it started to return to normal, it is paying the price of the war in Ukraine.
employed a significant number of our people, increased the total export of the Serbian economy, foreign trade exchange. So, a lot of those benefits we had,” says Savić and adds that when the crisis caused by the corona virus pandemic began, the government also gave aid to such large Western companies.
And on that, as well as on other types of aid, adds Savić, Serbia spent a significant amount of funds. Most of that aid was justified, necessary, inevitable, but he also notes that “part of the aid did not really have to go at that pace and to be given to those categories of people, those 100 euros, and various other aids that sounded nice.”
“Of course, I can’t say that this is not welcome to the people who received that help. And even if it weren’t for this Ukrainian crisis, they would probably have gotten through that situation relatively easily. However, the Ukrainian crisis happened, which increased the price of energy products many times over, supply chains before that… This has brought a severe crisis to the world that we do not see an end to. In the coming period, new borrowing will inevitably follow. Because the budgets of much more developed countries than Serbia are also significantly affected. We are looking for a way to cover this. We have seen to issue securities that no one will buy, even with transfer rates of a few percent. This will be a problem for highly developed countries to provide liquidity, and it will only be a problem for less developed countries such as Serbia. We are still somehow swimming ,but on the horizon it is completely clear that we will also have problems with public finances”, emphasizes Savić.
“But the prices of agricultural products and everything else have risen, and these growth forecasts have nothing to do with any real growth. If we are going to pay a billion more for electricity this year, the overall business of the economy is completely uncertain,” warns Drakulić.
By the way, he said at the Serbian Economic Forum in Kopaonik this spring that Serbia failed to make some important decisions regarding its own economic development.
“We gave our resources to be managed by people who are not competent. And we gave the most valuable thing we have to the Chinese. The bottom line is that private investment has fallen. The bottom line is that private investment has been falling for us for years because domestic businessmen have ‘tightened up’, they don’t believe in this economic system. Otherwise, we could have growth of six to seven percent if we were treated the same as foreign investors”, says Drakulić and adds that the essence is to develop the domestic economy, that profits do not go abroad, but to stay here and be used for new investments.
“Until the attitude towards domestic investors changes – there is nothing, there is no progress for us. There are also foreign banks, it is an irreparable matter. We sold everything, here is Komercijala banka. But the essence is to encourage domestic businessmen, to see it as their own. Because of the corruption we have, here they are more suited to a Chinese who will let him hunt, than a native who won’t let him hunt. The two biggest evils in Serbia are public companies and corruption. The way these companies are run and those party cadres who extract money…”, Drakulić was outraged.
“So, if someone doesn’t see it as state aid, then I think they are in big trouble. Second, in 2014, the state passed the Law on Investments for the first time. It did not only apply to foreign companies. All previous laws applied to foreign companies. Therefore, foreigners and domestic companies can have the same incentives. And the other thing is that they cannot because they have a completely different production character. They need to make a finished product with which they will enter the world market. Obviously, the domestic market is too little. For more serious development, this does not apply only to Serbia, it applies to the whole world, no one counts only on the domestic market. The more developed the country, the greater the need to export to world markets. Therefore, they do not have that kind of pass and they cannot use the subsidies used by foreigners. That is the reason, that is, the condition for them to use them”, says Savić, Ekspres writes.
