The World Bank’s latest report on the Western Balkans has positively assessed Serbia’s economic activities, raising the GDP growth forecast for the end of the year with some reservations. The report highlights a robust acceleration in the economy, although it also notes a significant increase in public debt, which rose to 52.6% of GDP in June after a fifteen-month decline. The drought affecting agricultural producers this year poses a potential threat to achieving the predicted GDP growth.
The World Bank now projects Serbia’s GDP to grow by 3.8% in 2024, up from an earlier estimate of 3.5%. This upward revision is attributed to strong performances in construction and services during the first half of the year, with GDP growth of 4.6% in Q1 and 4% in Q2, driven by recovery in private consumption and investments. The manufacturing sector also reported a 3.6% increase in production compared to the previous year, particularly in the food, tobacco, metal, electronic and automotive industries.
However, the report flags several risks to sustainable economic development. The summer drought significantly impacted agriculture, threatening to lower the projected GDP for the year. To mitigate the negative effects of climate shocks, the World Bank recommends public policy and investment measures, as well as encouraging private sector participation. There were notable declines in wheat and corn production, and issues in fruit growing could further affect the agricultural sector.
Regarding inflation, the World Bank anticipates a gradual decrease, with levels remaining within the National Bank of Serbia’s target range. It also predicts a higher fiscal deficit due to the suspension of fiscal rules until 2029 to accommodate extensive public spending on infrastructure projects.
Foreign direct investment remains strong, with €2 billion recorded in the first half of the year, and foreign exchange reserves reached a record €27.5 billion. However, the total loan mass decreased by 1.2%, although loans to private companies and households saw increases of 7.3% and 4.8%, respectively.
Economist Saša Đogović points out that the report is generally positive, driven by capital project investments and heightened construction activity. He suggests that if agricultural performance returns to average levels, GDP growth could exceed 4%. He also highlights ongoing regional disparities in Serbia, recommending a shift to a progressive tax system to promote social equity.
In summary, while Serbia’s economic outlook is generally positive, significant challenges remain, particularly in agriculture and regional development.
