Drought takes its toll on Serbia’s economic growth    

Objavljeno : 25.08.2017. Štampa El. pošta bookmark

Serbia plans to compensate for lower than planned GDP growth in 2017. Although, according to officials, economic indicators are good, the drought has taken its toll and forced the government to change its estimates.


On 21 August, the Serbian government admitted what economists and analysts had been warning about – that GDP growth in 2017 would not reach the projected 3% after 2.8% growth in 2016.


Prime Minister Ana Brnabić is now hoping for growth of 2.5% in 2017, whereas President Aleksandar Vučić is slightly more optimistic and expects 2.6 – 2.7%.


The World Bank and the International Monetary Fund earlier this year estimated the growth of Serbia’s GDP in 2017 at 3%, while the European Commission’s estimate was 3.2%.


According to the prime minister, the short-term measures the government has planned in order to compensate for drought-incurred losses could spur additional growth by the end of the year.


“The short-term measures may bring additional GDP growth of 0.2 to 0.3%. The good thing is that all the other economic indicators are good. Exports are growing 10-12%, the processing industry 6-8%. In that sense, the indicators are such that we have a growing and dynamic economy,” the prime minister told reporters.


Brnabić underscored that the short-term measures were ready, including the cleaning of canals and subsidizing the purchase of tractors, machines and equipment.


“Since our budget is in excellent condition, with very good fiscal discipline and a surplus, we can invest in short-term measures that will affect growth and are good in terms of capital investment. We will look at the projects that are ready at this time. We will invest more than we thought we would invest over the course of 2017,” said Brnabić.


Economists, however, are not convinced that the measures will yield any serious results, and do not think it is possible to make up in the second half of the year for the poor results achieved in the first six months.


“The results the Serbian economy achieved in the first half of the year are disappointing and there is almost no possibility of making up for them with good results in the second half of the year, especially bearing in mind the severe drought,” University of Belgrade Economics Professor Milojko Arsić told N1 TV, adding that he did not expect the Serbian economy to grow more than 2% by the end of the year.


Meanwhile, the Serbian president has told the country not to worry because production is rising, the coverage of imports by exports is the biggest in the region, the budget has a surplus and the public debt is decreasing. He has also pointed out that Serbia has based its growth on investment, which, in his words, is “the healthiest kind of growth”.


Announcing that the minimum wage would soon be raised 8-9% for close to 350,000 citizens with the lowest earnings, Vučić highlighted the necessity of increasing spending, which had not been possible during fiscal consolidation.


Central Bank Not Giving Up on 3% Estimate


Just a few days earlier, National Bank of Serbia Governor Jorgovanka Tabaković said that it was too soon for precise estimates as to how much the drought and weaker growth in the first half of 2017 would affect the annual growth of GDP and underscored that the central bank would stick to the GDP growth estimate of 3% in 2017 and 3.5% in 2018.


At a presentation of an inflation report on Aug. 16, the director of the NBS' Macroeconomic Analyses Division, Milan Trajković, said the slowdown of GDP growth was temporary.


"To achieve 3% GDP growth, in the rest of the year that growth needs to be between 4.5 and 5%," said Trajković and added that there were certain risks that GDP would slide downward.


Stressing that 90% of the economy had excellent results, that the processing industry was growing at a rate of 6% and exports at a rate of 12%, Trajković also said that a surge had been registered in formal employment along with an increase of salaries, and that "the fundaments are good."


At the same time, economist and member of the Council of the Governor Stojan Stamenković warned that the 5% drop in construction works in the second quarter and a weaker growth of investment, 1.3%, may have a negative impact on GDP.


Central bank officials also say the drought will not shrink the supply of agricultural products on the market, because there are stocks, but the export of those products will be reduced.


Where prices are concerned, given that the prices of products such as corn and soybean are determined by the global market, the central bank estimates that only short-term deviations are possible on the domestic market, along with some influence on the prices of food containing those ingredients, while the drought will have a minimal effect on fruit and vegetable prices on the domestic market.


Source: EURACTIV.rs

Photo: Pixabay.com


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