BELGRADE, October 24, 2022 – Serbia’s economy has largely weathered the impact of the ongoing war in Ukraine, spiking international energy prices, and a slowing global economy. But accelerating inflation, driven predominantly by higher food prices, and a worsening current account balance weigh on the outlook and the well-being of the most vulnerable groups, according to the latest Western Balkans Regular Economic Report, released today.
The Serbian economy grew 4.1 percent in the first half of 2022. It was driven primarily by private consumption on the back of substantially higher salaries and expanded credit to households. Notwithstanding declining net exports, economic growth for 2022 is projected to remain unchanged at 3.2 percent of GDP. Over the medium term, annual economic growth should stabilize at around 3 percent.
"While our growth projections for this year and over the medium term remain substantially unchanged, risks to this outlook are tilted to the downside," said Nicola Pontara, World Bank Country Manager for Serbia. "Costly energy imports have led to a significant deterioration of the current account deficit, which could widen to as much as 10 percent of GDP in 2022, while inflation remains stubbornly high."
Risks to the baseline macroeconomic outlook that could materialize in 2022 and 2023 include further spikes in food and energy prices. In addition, while the fiscal deficit has been contained in 2022 on the back of robust revenue collection, it could deteriorate should domestic state-owned enterprises require additional support from the budget to finance further energy imports.
The growth momentum is also slowing across Western Balkans countries, as high levels of inflation erode purchasing power and business confidence, while employment growth is less buoyant amid increased uncertainly. Although poverty rates continued to decline across the Western Balkans in 2022, sharply higher inflation poses risks to poverty reduction going forward.
"The Western Balkan governments are taking the necessary measures in response to rising inflation and the energy crisis, but the price is high: public expenditures have increased significantly," said Xiaoqing Yu, World Bank Country Director for the Western Balkans. "It is critical that such measures mitigate the impacts of these crises on the most vulnerable households and firms, and the World Bank stands ready to support countries in this effort."
The Western Balkans region should also continue to focus on boosting medium-term growth. To achieve that, the governments should facilitate market competition, remove barriers to businesses, protect foreign investment, reduce barriers to female labor force participation, improve the quality of education and raise the standards of governance, including digitalization.
The ongoing crisis also underpins the importance of accelerating the green transition in the region away from volatile and dirty carbons toward cleaner electricity generation, as well as greener production and consumption patterns, says the report.
