Although 2024’s economic growth could be only slightly higher than this year’s, the fundamentals of that growth could be far more solid. However, a lot depends on geopolitical risks
The Serbian economy could achieve slightly faster GDP growth during the next year than it has this year, on condition that the situation doesn’t worsen significantly in the world economy, and particularly in the European economies, and that Serbia’s relations with the EU don’t deteriorate. GDP growth could reach 2.5-3% in 2024, which at first glance appears to be a modest increase compared to this year. However, it is important to consider that this year’s growth of 2% was largely a result of the one-off recovery of agriculture from last year’s drought, as well as the unusually high increase in construction activity. If not for these one-off factors that cannot be counted on reoccurring next year, this year’s GDP growth would have stood at around 1%.
The expected increase in the rate of GDP growth is based on the assumption that world market prices of energy and other primary products will remain at the current level over the coming year, but also that the European economies will grow somewhat faster than they did this year. Increases in state spending ahead of the extraordinary elections will have a positive impact on the growth of the economy in the first months of next year, but this effect will be short-lived and modest. On the other hand, interest rates, which will remain at a high level, will inhibit the stronger acceleration of economic growth.
The possible worsening of Serbia’s relations with the EU, which is the source of the majority of investments and loans in Serbia, and which receives the majority of Serbian export products, would impact on decelerating economic growth
High interest rates will have a negative impact on investments, including FDI, and will particularly impact activities such as construction, the production of capital equipment and consumer goods. The expansionary fiscal policy that was implemented in the last quarter of 2023 will slow the pace at which inflation declines, which will prolong the need for the National Bank of Serbia to implement a restrictive monetary policy, and this will in turn slow the economy’s recovery in the second half of next year.
The predicted growth could be lower if some of the geopolitical risks materialise, leading to a significant increase in energy prices. The possible worsening of Serbia’s relations with the EU, which is the source of the majority of investments and loans in Serbia, and which receives the majority of Serbian export products, would impact on decelerating economic growth. Finally, a poor agricultural season, which is becoming increasingly common due to climate change, could reduce GDP growth.
We expect inflation to continue to slow in the year ahead, but for it to be slightly higher than predicted in the government’s official documents. The reasons for this are the expansive fiscal policy in the pre-election period, rising labour costs, as well as the postponed increase in prices controlled by the administration. We expect that the average inflation rate over the next year could total 6-7%, while inflation would stand at around 5% by year’s end, which means that inflation would be halved compared to this year.
