European Commission forecasts continuation of economic expansion in Serbia

In its latest report, the European Commission's Directorate-General for Economic and Financial Affairs predicts economic growth in Serbia “to pick up markedly” and the economic expansion to continue.

– Economic expansion is expected to continue in the following years, mainly on the back of recovering private and public consumption – says the report for the second quarter of 2018.

The European Commission's Directorate-General for Economic and Financial Affairs Economic forecast in its Institutional Paper on reform programs of the Western Balkans and Turkey in 2018 that the growth in Serbia is forecast to pick up markedly.

– Although growing aggregate demand would drive prices up, inflation is forecast to stay close to the central bank target. Foreign direct investment is expected to remain large and to fully cover the current account deficit – the report says.

The report says that, in the 4 years from 2014 to 2017, the general government budget moved from a very high deficit to a surplus, but the 2018 budget “could have been more ambitious in addressing some legacy issues from the crisis”.

– The medium-term budget deficit target of 0.5% of GDP is sufficient to ensure fiscal sustainability and further reduction of government debt, which is still relatively high at above 60% of GDP – the report says.

When it comes to EU recommendations for the economic sector in Serbia, the Directorate-General assesses that maintaining a proper macroeconomic policy mix and continuing difficult structural reforms remain demanding.

The report says that government debt is still high and fiscal risks are elevated as key public sector reforms remain unfinished. Incomplete restructuring and privatization of state-owned enterprises still poses a risk.

– The privatization and restructuring of state-owned enterprises continued to face delays, which are most critical in the energy sector – the report says.

Serbia is also recommended to step up capital expenditure with a better system of planning and execution.

– Serbia should develop a single mechanism for prioritizing and monitoring all investments regardless of the source of financing, as provided for in the public finance management (PFM) reform program – the report says.

The report says that the business environment has improved but remains costly with unfair competition coming from the public and the informal sector. Own resources remain the principle funding for SMEs.

– Trade integration with the EU is growing, but remains hindered by many non-tariff barriers, especially in the phytosanitary area – the report says.

More substantive labor market reforms and increased investments in active labor market policies are needed, and the assessment is that “youth and women did not sufficiently benefit from the positive labor market trends in 2017”.

Education reforms need to be pursued, the paper says.

Based on the ERP forecasts, average annual GDP growth in the Western Balkans is to accelerate to 3.8% in 2018-2020 from the 2.5% recorded in 2015-2017.

According to the report, in Serbia, “the largest economy in the region”, the acceleration of private consumption is expected to be the strongest of the enlargement countries.

EUROPEAN COMMISSION Bruxelles

European Commission

Directorate General for Economic and Financial Affairs

economic expansion in Serbia

Serbian economy

report for the second quarter of 2018

EU recommendations for the economic sector in Serbia

GDP of Serbia

gross domestic product of Serbia

average annual growth of GDP

funding small and medium enterprises

reform of public companies in Serbia