SERBIA Key conditions and Recent developments challenges The economy grew by 7.4 percent in 2021 pushed by the consumption, pushed by a Table 1 2021 The focus of the Government of Serbia large increase in private consumption (up Population, million 6.9 in 2020 and 2021 was on supporting the 7.6 percent in real terms y/y), thanks to a GDP, current US$ billion 63.0 economy to recover from the impact of strong increase of salaries and consump- GDP per capita, current US$ 9168.9 the COVID-19 pandemic. The Serbian tion loans. The economic recovery in 2021 a 10.1 Upper middle-income poverty rate ($5.5) government approved a robust fiscal was broad based, with the exception of the a 34.5 stimulus program in both years and as agriculture sector, where output declined Gini index b 97.7 a result the economy experienced only a by 5.4 percent in real terms. School enrollment, primary (% gross) Life expectancy at birth, years b 75.7 mild recession (of -0.9 percent) in 2020 Poverty (defined as income under $5.5/day Total GHG Emissions (mtCO2e) 62.5 and rebounded by 7.4 percent in 2021. in revised 2011 PPP) is estimated to have The impact of the program, however, declined slightly from 10.2 percent in 2020 Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2011 PPPs. came at considerable fiscal cost. The fiscal to 9.8 percent in 2021. The wage subsidy b/ WDI for School enrollment (2020); Life expectancy deficit reached 8.1 percent of GDP in 2020 and cash transfers to citizens in 2020 (2019). and public debt increased to around 58 helped to avert a spike in poverty. In 2021, percent of GDP. poverty reduction slowly resumed due to Over the medium term the Serbian econ- strong economic growth and improving la- The Serbian economy is recovering well omy is expected to return to the pre- bor market conditions, though partly from the impact of COVID-19 pandemic pandemic growth levels. However, Serbia countered by an output decline in agricul- by growing 7.4 percent in 2021 and still faces challenges that limit its poten- ture, rising inflation at the end of the year, tial growth both in the short and medium and the phasing out of government sup- poverty incidence declined to an estimat- to long terms. Most importantly, Serbia port programs. ed 9.8 percent. Growth is expected to de- needs to further remove bottlenecks for The labor market started improving celerate in 2022 and the risks to the private sector investment. These include throughout 2021. In Q4 of 2021, the un- growth outlook are clearly tilted to the a deteriorating governance environment, employment rate dropped to 9.8 percent. lack of infrastructure and an unreformed Wages continued to go up, increasing by downside. Poverty reduction is expected education sector, which creates skills mis- 9.6 percent in nominal terms in 2021. to stagnate in 2022 as income gains are matches in the labor market. With limited The consolidated fiscal deficit decreased weakened by rising inflation risks. space for future stimulus packages, struc- significantly in 2021 to reach an estimated tural reforms are needed to bring the 4.1 percent of GDP. Despite the fact that economy back to sustained growth, boost government expenditures increased by jobs and incomes and strengthen re- 10.1 percent (in nominal terms). Public silience to shocks. The second big chal- debt at end-December 2021 stood at 57.1 lenge is a large and still not entirely re- percent of GDP, thus only marginally de- formed SOE sector. creasing since end-2020. FIGURE 1 Serbia / Real GDP and potential growth and FIGURE 2 Serbia / Actual and projected poverty rates and contributions to potential GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 7 30 900000 6 800000 25 5 700000 4 20 600000 3 500000 15 2 400000 1 10 300000 0 200000 5 -1 100000 -2 0 0 2000 2003 2006 2009 2012 2015 2018 2021 2024 2012 2014 2016 2018 2020 2022 2024 TFP Capital Labour Potential Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations. Source: World Bank. Note: see Table 2. MPO 37 Apr 22 Starting in the summer, there was a grad- mind the significance of these flows, sound and viable. In addition, the gov- ual increase in inflation and the consumer growth for 2022 could be revised down- ernment should use the opening of new price index (CPI) reached 8.8 percent (y/ wards to 3.2 percent. Further revisions are chapters of the EU acquis to accelerate y) in February. Food inflation, higher than possible depending on the length of the reforms and align Serbian legal and in- in all EU countries in January 2022, hurt war and the scope of sanctions toward stitutional system to that of the EU. the poor. Household energy tariffs in Ser- Russia. Over the medium term, the econo- Poverty reduction is expected to stagnate bia are regulated and have been kept un- my is expected to grow steadily at around in 2022. The unfolding war in Ukraine changed so far despite rising energy costs. 3 percent annually. poses significant downside risk for house- The current account deficit (CAD) in- The outlook also crucially depends on hold welfare in Serbia. While Serbia’s creased to an estimated 4.4 percent of GDP the domestic reform agenda and its im- economy is expected to continue to grow, for 2021, up from 4.1 percent in 2020. plementation. The ongoing crisis in the contributing to income growth for house- domestic energy sector emphasized once holds, rising inflation will limit purchas- again the importance of improved man- ing power. Particularly rising energy agement of SOEs. In addition, contin- prices, if they are passed onto household Outlook gent liabilities could affect public fi- energy tariffs, would disproportionately nances, particularly those related to the hit the poor. Poverty in 2022 is projected The Serbian economy was expected to con- deterioration in the performance of at 9.6 percent, close to its 2021 level, tinue to grow at around 4-4.5 percent an- SOEs, as demonstrated recently by though could be revised upward depend- nually. However, the war in Ukraine and Telekom Srbija and Air Serbia. As a ing on the length and severity of the sanctions on Russia will certainly have an remedy, the government should embark war’s economic impacts. The pace of la- impact on Serbia’s exports, FDI, remit- on a comprehensive and thorough re- bor market recovery remains critical for tances and tourism revenues. Having in form of SOEs to make them financially resumed poverty reduction. TABLE 2 Serbia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.3 -0.9 7.4 3.2 2.7 2.8 Private Consumption 3.7 -1.9 7.6 6.1 4.2 3.7 Government Consumption 2.0 2.9 2.6 1.1 0.5 -0.6 Gross Fixed Capital Investment 17.2 -1.9 12.5 -1.0 0.3 2.1 Exports, Goods and Services 7.7 -4.2 19.4 5.4 5.2 5.4 Imports, Goods and Services 10.7 -3.6 19.3 5.7 4.8 4.7 Real GDP growth, at constant factor prices 4.4 -0.8 7.3 3.0 2.6 2.9 Agriculture -1.7 2.2 -5.4 5.7 4.5 3.4 Industry 5.9 -0.6 7.8 2.4 4.5 4.5 Services 4.4 -1.2 8.7 3.0 1.5 2.0 Inflation (Consumer Price Index) 1.9 1.6 4.0 7.0 4.0 3.7 Current Account Balance (% of GDP) -6.9 -4.1 -4.4 -6.4 -5.8 -5.1 Net Foreign Direct Investment (% of GDP) 7.7 6.3 6.8 5.8 5.9 5.9 Fiscal Balance (% of GDP) -0.2 -8.0 -4.1 -4.1 -3.0 -2.2 Debt (% of GDP) 52.8 57.8 57.2 58.2 58.9 56.8 Primary Balance (% of GDP) 1.8 -6.0 -2.4 -2.3 -1.0 -0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 10.1 10.2 9.8 9.6 9.3 9.0 GHG emissions growth (mtCO2e) -2.1 0.5 1.6 -0.4 -0.6 -0.8 Energy related GHG emissions (% of total) 75.4 75.7 76.1 76.0 75.8 75.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2013-EU-SILC, 2017-EU-SILC, and 2019-EU-SILC.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2013-2017) with pass-through = 0.2 and 0.3 based on GDP per capita in constant LCU, reflecting impacts of rising prices. MPO 38 Apr 22