The European Bank for Reconstruction and Development (EBRD) has increased its forecast of Serbia’s growth for this year to 6% in its latest Regional Economic Prospects report, as compared to the estimate from September 2020, when the forecast was 3%.
In 2022, a growth rate of 3.5% is forecast, as the economy is expected to return to the pre-pandemic speed of expansion and fiscal consolidation might commence.
The report points out that, in the first quarter of 2021, GDP grew by 1.7% year-on-year, underpinned by a strong recovery in the construction sector, but also by growth of industrial output and an increase in trade, transport and tourism activities
This international investment and crediting institution expects a recovery of consumption in Serbia after the Covid-19 pandemic.
In that context, they remind that expansionary fiscal policy is continuing as the government has adopted additional fiscal stimulus measures to the tune of 4.5% of GDP (EUR 2 billion) for 2021, consisting of increased expenditures in healthcare, wage subsidies and one-off payments to pensioners and some adults.
The budget for 2021 also includes a significant increase in public investment, the report points out.
Matteo Colangeli, Director for the Western Balkans region and Head of Serbia for the EBRD, says that they are satisfied with the strong economic recovery of Serbia and that the bank remains dedicated to supporting the authorities in maintaining this accelerated growth.
– The strengthening of the competitiveness of the private sector, the support to well-structured investments in transportation and environmental infrastructure, as well as the transition to green energy, will be the key priorities for a better growth following the Covid-19 crisis – he added.
In general, the effects of the Covid-19 pandemic on the economy of Serbia were moderate in 2020, says the EBRD report.
The structure of the economy – limited reliance on tourism and a relatively high share of basic goods such as food and some chemicals in manufacturing – combined with large government aid packages and less restrictive lockdown measures for most of the year, contributed to a GDP contraction of only 1%, the EBRD notes.
It is added that the government’s Covid-19 response package of around 13% of GDP (EUR 5.8 billion) in 2020 consisted of support to the healthcare sector, wage subsidies, financial support to citizens, tax deferrals and liquidity support to small and medium sized enterprises through credit guarantee schemes.
Public debt increased by around 5 percentage points in 2020, reaching 58% of GDP at year-end, the document says. As for risks to the forecast, they are balanced, according to the EBRD. The bank says that they relate primarily to the pace of recovery of external demand and speed of implementation of public infrastructure projects and structural reforms.
When it comes to the overall Western Balkans forecast, GDP growth in the region is expected to be 5.1% in 2021, moderating to 3.8% in 2022.
Downside risks mainly relate to the pace of recovery of the tourism sector from the pandemic where travel restrictions still remain in source countries.
As for the individual economies of the Western Balkans, the EBRD has increased the forecast for Montenegro by 3.5 percentage points (pp) compared to September to 6% for 2021, a growth of 4% is expected in North Macedonia (up by 1 pp compared to September), the forecast for Bosnia and Herzegovina is 3.5% (up by 0.5 pp), whereas the forecast for Albania remains unchanged at 4%.
Beata Javorcik, EBRD Chief Economist, said that, although the revised forecasts provided reasons for optimism, the great uncertainty regarding the Delta strain of Covid-19 remained. This strain poses an especially large risk for countries which have not progressed as far with the vaccination and economies which rely on international tourism to a large extent.
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