Serbia has passed through a period of dramatic change during the previous fifteen years. The impact of the international financial crisis and numerous rounds of elections have slowed down necessary structural reforms in the country. However, more recent trends point to a move toward greater fiscal responsibility and a reengagement on critical issues such as state owned enterprise reform, financial sector reform, and public sector efficiency. In January 2014, Serbia started membership talks with the European Union (EU) after making significant progress in negotiations with Pristina, Kosovo. The authorities have also made tough political decisions, including the arrest and extradition of the last of the country’s indicted war criminals that remained at-large.
Serbia has pursued these reforms while struggling to recover from the impact of the international financial crisis - which led to a 50% spike in poverty and a similar jump in unemployment in the country. As in many countries, the challenge in Serbia is translating a tenuous economic recovery into jobs and poverty reduction in a tight fiscal environment. As a result, Serbia needs to become more competitive and increase productivity in the country.
As detailed in the 2012 Country Economic Memorandum (CEM), reform in the country will require attracting and adopting new technologies, which, in turn, depend on a the existence of a supportive business environment, capable institutions, a skilled labor force, and high-quality infrastructure.
Growth in Serbia for 2013 is estimated at 2.5%, but is expected to decline to just 1% in 2014, reflecting the impact of fiscal tightening, lower inflow of investments, and the ongoing fragile situation in the domestic and international financial sectors. More robust growth rates of around 2-3% are forecasted over the medium term.
Serbia’s per-capita Gross Domestic Product (GDP) was approximately $6,134 in 2013. The poverty rate stood at 9.2% in 2010, up from a low of 6.1% in 2008. Growing unemployment led to a record high unemployment rate of 24% in October 2011, which eventually ebbed to around 20% at the end of 2013.
Serbia’s main exports are cars and other products from the automotive sector. Automotive exports have become the most important sector following significant investments from Italian carmaker FIAT. Almost 90% of all Serbian exports go to Europe—55% to the EU and about 33% to the Central European Free Trade Agreement (CEFTA) region. Exports of services are also gaining in importance, reaching 10% of GDP in 2013.
Going forward, Serbia’s main challenge is to improve living standards in the country and transform economic recovery into jobs in a tight fiscal environment. Increasing exports, productivity, and competitiveness are recommended actions that can help propel the country’s economic growth.