GDP growth stats don’t mean much in these kinds of crises, because the majority of people are living worse than before in spite of GDP growing. Considering that prices are continuing to rise in Serbia, it is highly likely that the wave of protests that started recently could become even bigger from the coming autumn, particularly if the government fails to raise salaries and pensions
Our institute’s projections are that Serbia’s economic growth will probably be even lower, no more than 1.5%. The country’s GDP even fell in the first quarter of this year compared to the previous quarter, which happened for two main reasons. The first is that inflation was excessively high, at close to 15%, which reduces purchasing power and thus also household consumption. The second reason is weak government spending, which additionally slowed down the economy. The government needs to address these two things in order to stimulate the economy. It firstly needs to increase its spending, as it did during 2020, at the start of the pandemic. And it secondly needs to raise all types of income that it has an impact on – such as public sector wages, pensions and social assistance – in order to encourage consumer spending.
When it comes to living standards, it should be noted that this crisis is specific in that it doesn’t impact all people in the same way. Rising prices mean higher living costs for some, but higher profits for others. Of course, the first group has far more members and they include almost everyone who lives from their work, and that accounts for 95% of people. That’s why GDP growth stats don’t mean much in these kinds of crises, because the majority of people are living worse than they were before despite GDP growing. That creates dissatisfaction that can easily turn into protests, which we are even seeing in countries that are known for their socialist qualities, like France. Considering that prices are continuing to rise in Serbia, it is highly likely that the wave of protests that started recently could become even bigger from the coming autumn, particularly if the government fails to raise salaries and pensions.
It wouldn’t be good for the state to decide to start saving and fail to increase salaries and social transfers, for EU integration to reach a standstill and for reforms to be abandoned, as that would undoubtedly lead to stagnation
As for foreign investments, these protests don’t mean much to them, as they do not disrupt their operations. Geopolitical issues are much more important to them, first and foremost whether Serbia is moving towards the EU or the East. There were numerous dilemmas in this regard with the outbreak of the war in Ukraine last year, which is why we saw a decline in foreign investments from the EU. It seems to be becoming clearer this year that Serbia still wants to take the road to the EU, which is why foreign investments recorded growth of more than 50% in the first five months of this year. When it comes to the end of this year and next year, the best-case scenario is for people’s earnings to increase, for the state to intensify its spending in order to stimulate the economy, for doubts about Serbia’s European path to be overcome and thus foreign investments to increase, and for reforms to be implemented in order to support domestic investment. In such a case, economic growth could reach 3% by as early as next year. The worst-case scenario would be for the state to start saving and fail to increase salaries and social transfers, for a standstill in EU integration to be reached and for no reforms to be implemented. In such a case, Serbia would face economic stagnation, with growth of around 1%.
