Author: Jan Muś

Analyst in the Balkan Department at the Institute of Central Europe in Lublin, Poland

Optimistic data from Serbia

The liberal policies of Serbia's Prime Minister Ana Brnabić are beginning to bear fruit. GDP growth in the Q1’18 reached 4.5 per cent, exceeding previous forecasts of 3.9 per cent.

In the Q1, industrial production grew by 5.9 per cent. Increases were recorded in all sectors: electricity and gas supply grew by 10.9 per cent, mining grew by 3 per cent and manufacturing production grew by 5 per cent. Prime Minister Brnabić points out that in the Q1 there was a revival in the sectors in which production has been declining since the beginning of last year, and especially in the construction sector and the electric energy production sector.

Short-term indicators of activities in the construction industry, and in particular the increase in the production of construction materials, public investment expenditure, the number of issued building permits, and employment, suggest that growth in this sector has accelerated and, according to estimates, significantly contributed to GDP growth in the Q1.

At the same time, favorable changes were also observed in the services sector. Retail trade grew by 3.2 per cent in real terms, and the number of tourist arrivals and overnight stays increased at double-digit rates.

“We’ve shown that through teamwork and dedication of all members of the government we can achieve the expected GDP growth, which enables us to create new jobs and to have higher wages and pensions. A strong economy means a strong Serbia,” said Brnabić. She added that this result is particularly important because it provides prospects for the future for young people.

Thanks to the division of responsibilities between her and the country’s political leadership (Brnabić is a technocrat who has extensive professional experience gained in international organizations and various domestic institutions), the prime minister was able to focus on the issue of economic reform.

“The fact that the model of economic growth is changing is as important as the GDP growth rate. Rather than borrowing and spending money, which was the main driving force of the Serbian economy ten years ago, our growth is now based on sustainable sources, primarily on production, investment and innovation” said the Prime Minister.

Since June 2017, Brnabić has been doing a lot to reduce public spending, stabilize the fiscal situation, gain the trust of the International Monetary Fund and the World Bank, and consequently, to attract investors who are badly needed in Serbia.

According to the data of the Serbian Statistical Office, in the Q1’18 exports and imports of goods increased by 8.7 per cent and by 12.3 per cent, respectively. The structure of imports, dominated by purchases of equipment and intermediate goods for industrial purposes, also confirms, that investment—alongside trade—is the main driving force of growth.

Inflation remains at a low level. In March the increase in consumer prices amounted to 0.1 per cent. The low inflation rate was the result of a decline in the prices of tourist packages and petroleum products. There were increases in the prices of fresh fruit, fresh meat, milk and dairy products, however. In March 2018, core inflation fell to the lowest level since the monitoring began, i.e. to 0.8 per cent. Inflation is expected to approach the target level in 2019.

After the Q1, Serbia recorded a budget surplus of RSD6.1bn (approx. EUR50m), instead of a deficit of RSD40.1bn (EUR340m) which was originally forecasted.

According to the latest report of the World Bank, the unemployment rate in Serbia has fallen and now amounts to 13.5 per cent. And although this level remains the lowest in the region, in 2016 other indicators of professional activity were still worse than in the European Union.

The situation of employees in Serbia is much worse than in other European countries. The process of restructuring and privatization, the economic crisis and the associated neoliberal reforms of the labor market have taken their toll. The percentage of people who are employed in unfavorable conditions (e.g. on so-called junk contracts) still amounts to about 28 per cent, while in the EU it is around 15 per cent. and in Poland slightly exceeds 20 per cent.

The subjective sense of security in the workplace is also lower in Serbia than in EU countries. This is confirmed by data concerning changes in the status on the labor market. The unemployment rate among young people is still high compared to other European countries and amounts to 34.9 per cent (only Greece, Spain and Italy have higher levels of unemployment among youngsters).

Although the unemployment rate among people in the 55-64 age group is relatively low and only amounts to 9.9 per cent, it is particularly worrying that there is a large percentage of people (30 per cent) who are not employed and are not receiving a pension.

The standard of living is not improving either. The healthcare system and the public transport system (especially the railways) still require huge financial outlays. The air quality in Belgrade—where the country’s social, economic and cultural life is concentrated—leaves much to be desired. According to the Human Development Index, Serbia ranks 6th from the bottom of the list among European countries.

Prime Minister Brnabić has to address these problems if she is serious about the long-term economic growth supported by a stable political situation. The fair distribution of the results of economic growth is a strategic issue.

Jan Muś is a lecturer at the Vistula University.

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