EC forecasts Serbia's growth to remain firm

Despite a global economic slowdown, Serbia's economy is on track to continue its robust growth coming from strong investment and steady private consumption, sustained by rising employment and income levels, the European Commission says.

08 Novembar 2019 19:20

BRUSSELS - Despite a global economic slowdown, Serbia's economy is on track to continue its robust growth coming from strong investment and steady private consumption, sustained by rising employment and income levels, the European Commission says.

Growth remains firm and Serbia is registering record-high FDI inflows, risks appear balanced and the budget is in excellent condition, the EC said in its autumn 2019 European Economic Forecast.

The EC has revised upwards its 2019 projection of Serbia's economic growth by 0.1 pp to 3.2 pct.

In a spring forecast, the EC had projected 3.1 pct growth for Serbia.

The latest report forecasts Serbia's GDP growth to be 3.8 pct in 2020 - unchanged from the spring projection - and 3.7 pct in 2021.

The EC also revised upwards its projection of growth of Serbian exports of goods and services for this year from 6.9 pct to 8.1 pct, with 7.9 pct and 7.4 pct growth projected for 2020 and 2021, respectively.

At the same time, the EC expects growth of imports to Serbia to accelerate to 9.5 pct this year, which is 1.4 pp more compared to the spring forecast.

Imports are expected to rise by 7.8 pct and 7.5 pct in 2020 and 2021, respectively.

"The strong FDI inflow in tradable sectors over recent years has sustained a faster than previously expected export expansion in the current year. Net exports will subtract less from 2019 growth than projected in the spring forecast. As the Serbian economy continued to attract record-high and well-diversified FDI in 2019, it is well positioned to maintain its strong export momentum, despite pressures from the external environment.

Robust domestic demand has been a key feature of the economy in the last few years and is forecast to remain a major growth driver in the next two years. It is also expected to remain broad-based, with important contributions to growth from both consumption and investment. The labour market is expected to become increasingly tight as new jobs continue to be added, while population and labour force are set to decline further.

The strong real wage growth is, therefore, likely to persist and will, together with increased government transfers, provide a boost to household consumption, especially in 2020. Government spending is also expected to continue supporting economic activity directly through higher public consumption and capital expenditure.

Gross fixed capital formation has expanded significantly recently, but its share in GDP is still low at around 20 pct of GDP. Investment growth is projected to moderate but is likely to remain robust, in view of the good macroeconomic prospects, lower risk premiums, improved financing conditions, and the high FDI inflow.

Price stability remains well anchored and demand-driven pressures are expected to be largely contained over the forecast period," the report said.



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