Two banknotes for 100 and 50 Serbian dinars

Two banknotes for 100 and 50 Serbian dinars (© muratologia/Shutterstock)

Despite the pompous statements by President Aleksandar Vučić on the economic solidity of Serbia after Covid-19, supported by the Minister of Finance, the situation presents more than one weakness

17/06/2020 -  Giovanni Vale Zagreb


The Serbian economy is "the best in Europe". The economic forecasts that accompany phase two of the fight against the pandemic (and which announce an imminent global crisis) seem to have brought Serbia to the top of the world. This, at least, is the interpretation by Aleksandar Vučić. In a press conference held in early May, the Serbian President announced that "this year, we will be the first European country in terms of growth rate and one of the best in the world". "Serbia must get used to being the best in Europe", echoed the Minister of Finance and former mayor of Belgrade Siniša Mali. Needless to say, not really.

A recent article by Balkan Insight  puts such statements in the right perspective by interviewing some Serbian economists. It shows that, while it is true that Serbia will record a decrease in GDP by "only" 3–4% in 2020 (depending on the study) against 7–9% in other countries (including Germany, France, and Italy), this relative victory still hides weaknesses (besides the more obvious fact than comparing percentages is not necessarily a good idea). The impact of lockdown on a country's economy depends on many variables, including the importance of tourism and services, the development of international trade, and a country's level of connection with other economies. So what is the context in Serbia?

A differentiated economy

First of all, a premise. The last International Monetary Fund (IMF) mission to Belgrade ended on February 28th, 2020, when coronavirus was already a global problem, although not yet officially a pandemic (that came on March 12th). Despite this, the IMF report confirmed "the positive macroeconomic outlook [for Serbia, ed.] for 2020, with a GDP growth projection of 4%", in the wake of the "robust performance of 2019, with an estimated growth of 4.2%". A few weeks later, that analysis is worthless. This is to say that it is worthwhile to take all the projections (even those mentioned below) with a pinch of salt.

The Serbian economy appears to be quite differentiated, that is, without the presence of a sector responsible for a large portion of the gross domestic product. The cross-section of GDP presented by the Belgrade statistical office shows the contribution of different sectors. Against a GDP of about 51 billion dollars (40 times lower than Italy's, to talk about percentages...), the automotive and steel industry makes up for a fifth of GDP together with the production of electricity (mostly coal). Agriculture and construction each represent 6%, while commercial activities produce 17% of GDP, slightly more than the public and defense sector which is worth 11%.

This "broad base" that supports the Serbian economy is undoubtedly a strength, as also noted by the European Commission in its quarterly report last autumn. Unlike countries such as Croatia or Greece which depend heavily on tourism (which makes up for at least one fifth of GDP), Serbia will therefore react more flexibly to the consequences of the pandemic. This does not mean, however, that the country does not depend on the rest of the world, on the contrary. "Due to its opening up in trade, the Serbian economy will be hit hard by the contraction in external demand caused by COVID-19", points out the latest report by the European Commission for spring 2020 .

Foreign direct investment

Not only will imports and exports be limited in 2020, but the climate of uncertainty could also affect another engine of Serbia's recent growth: foreign direct investment, the flagship of Vučić's economic policy. In 2019, Belgrade hailed the country as "the world champion of foreign investment". The government then cited the annual report by “fDi Intelligence” , a consulting agency that is part of the editorial team of the Financial Times. The 2019 report actually placed Serbia at the top of a world ranking, forcing Balkan Insight to another fact-checking .

Without going into the merits of that study and the counter-analysis by Balkan Insight, what concerns us here is to note that in recent years Serbia has been able to attract an increasing number of FDI, or foreign direct investment. From the Smederevo steel mill bought by the Chinese in 2016 to the Belgrade airport entrusted to the French Vinci in 2018, together with the change of ownership of several banks, many economic actors of Serbia have been involved in foreign investments that have changed their ownership or management. From a nominal point of view, these capitals certainly contribute to fuel the growth of the Serbian economy, but is their long-term contribution really positive?

There is no shortage of criticisms of the attraction policy of FDI at all costs, in Serbia and elsewhere. A recent study by the Rosa Luxemburg Foundation  in Belgrade, for example, criticises the social costs of the operation, pointing out that the Serbian government sells domestic labour low-cost in exchange for investments that ultimately bring profits outside national borders. But you do not need to be a Marxist to doubt the health of Serbian economic growth in recent years. Eurostat notes for example that, in 2017, the richest 20% of the Serbian population earned 9.4 times more than the poorest 20%, making Serbia the country with the highest level of inequality among those considered (the EU-28 plus candidate countries).  

In short, the growth figures hide contradictory facts.

Near future

What will happen in Serbia now? International organisations agree in forecasting a recession in 2020 of around –4%, followed by a 6% growth in 2021. The best recession in Europe, Vučić would say (glossing over the fact that the European Commission itself speaks of "high uncertainty" when describing Serbia's economic future). According to this scenario, however, the government is expected to borrow more (at higher interest rates, notes Serbian daily Danas ) as it will have to make up for the temporary lack of internal and external demand and the reduced investments, while poverty – warns, almost cautiously the World Bank – "could grow".

In the long run, however, it is a different matter. Privatisations and foreign direct investments have given Belgrade's strongman many opportunities to cut ribbons and celebrate international synergies in recent years but, like in other countries in the region, a more discreet (but constant) movement seems to tell a less radiant future. It is emigration, accompanied by a lack of immigration and a low birth rate. According to estimates by the Belgrade statistical office , in a few years Serbia will have the same number of inhabitants as it had in 1950. And in thirty years, the country will have 5.7 million inhabitants, or almost a quarter less than it registered in 1989.

It seems impossible, yet the Serbs are abandoning the country that should "get used to being the best in Europe".


This article was published as a preview for OBCT subscribers on June 5, 2020

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