Recent Economic Developments
The Serbian economy recovered well from a mild recession in 2020 that was related to the impacts of COVID-19. The economy grew by 7.4 percent in 2021, mainly driven by private consumption, thanks to a strong increase in salary levels and consumer loans. The economic recovery in 2021 was broad based except for the agriculture sector, where output declined by 5.4 percent in real terms.
Poverty (defined as income under US$5.5/day in revised 2011 purchasing power parity) is estimated to have declined from 10.2 percent in 2020 to 9.8 percent in 2021. The unemployment rate shrank to 9.8 percent in the fourth quarter of 2021 from 10.5 percent in the third quarter. Wages continued to increase in 2021 by as much as 9.6 percent in nominal terms.
The consolidated fiscal deficit decreased significantly in 2021 to an estimated 4.1 percent of GDP from 8.0 percent in 2020. Public debt at end-December 2021 stood at 57.1 percent of GDP.
Inflation has been gradually accelerating since the summer of 2021, and the consumer price index reached 8.8 percent (year-on-year) in February 2022 compared to 1.2 percent in February 2021. Food inflation has increased in Serbia more than in any other EU country, affecting most the poorest segments of the population. Household energy tariffs in Serbia are regulated and were kept unchanged despite rising energy costs. The current account deficit increased to an estimated 4.4 percent of GDP for 2021 from 4.1 percent in 2020.
The Serbian economy was projected to grow at around 4–4.5 percent annually. However, the war in Ukraine and resulting sanctions imposed on Russia will have an impact on Serbia’s exports, FDI, remittances, and tourism revenues. As such, economic growth for 2022 has been revised downward to 3.2 percent. Over the medium term, the economy is expected to grow steadily at around 3 percent annually.
The ongoing crisis in the domestic energy sector emphasized the importance of the improved management of state-owned enterprises (SOEs). Looking forward, contingent liabilities could affect public finances in Serbia, which points to the need to complete the reforms undertaken to date to make SOEs financially sound and viable. The Government of Serbia can also take advantage of the opening of new chapters of the EU acquis communautaire to accelerate reforms and align Serbia’s legal and institutional system to that of the EU.
Poverty reduction is expected to stagnate in 2022. The unfolding war in Ukraine poses a significant downside risk to household welfare in Serbia. Although the Serbian economy is expected to continue to grow, rising inflation will limit the purchasing power of citizens. Rising energy prices, if passed onto household energy tariffs, would disproportionately affect the poor.
Last Updated: Apr 18, 2022