BELGRADE (Serbia), October 28 (SeeNews) – Serbia’s economy, which hit rock bottom over the summer, is likely to follow a U-shaped recovery pattern, meaning that the rebound will be slow but steady, a leading local economist said.
“When economists talk about recovery, they often use three Latin letters to describe it. If it is going to be a V-type, we'll have a hard landing and a robust takeoff,” Jurij Bajec, an economic advisor to Prime Minister Mirko Cvetkovic, told SeeNews in an interview.
“Others say it is more likely that it will be U-shaped, meaning we hit rock bottom but the recovery will be a bit slower. Or, according to some of the leading economists, such as Nouriel Roubini, it will be in the shape of W, meaning we are going to have a recovery, but that recovery is pumped up more than it is real via major subsidies from developed nations, such as the U.S. Once that short-term recovery is over, we are going to have another fall before we have a complete recovery,” Bajec explained.
“I personally think, and hope, that we are in the letter U.”
The latest projection by the International Monetary Fund (IMF) that Serbia’s economy will grow by 1.5% next year, is a realistic example of the expected slow U-type recovery, Bajec said.
“We accepted this projection. So far, the World Bank and the IMF were not very far off when Serbia’s economy growth is concerned. In that sense, I don’t think that this growth is impossible. I don’t consider that a growth rate of 1.5% is that dramatic,” he said, adding that one percent of Serbia’s projected 2010 gross domestic product (GDP) amounts to about 30 billion dinars ($475 million/321 million euro).
“This [growth] requires a very small amount of money, which is some 300 million euro per one percent of the GDP. What is that? That’s a mere 450 million euro more,” he said.
An IMF mission led by Albert Jaeger has been in Belgrade since last week for a review of the country's economic performance under the 3.0 billion euro ($4.5 billion) stand-by funding arrangement signed in March. The disbursement of 1.4 billion euro from the aid package hinges on the outcome of the current review.
Serbia expects to exit the economic crisis in the first quarter of next year at the latest, Economy Minister Mladjan Dinkic earlier this month, while the World Bank sees this happening more likely towards the end of 2010.
“We will see this based on the results of the third and fourth quarters, that is the second part of the year,” Bajec said. Serbia's central bank reported earlier the country's economy contracted by a real 2.7% in the third quarter, year-on-year, after shrinking by 4.1% in the first half of 2009.
“I see some signals of moderate recovery here and there. I see them displayed more clearly in some plans of foreign investors, such as Ikea and Fiat, rather than in statistical trends pointing to a move upwards,” Bajec said.
He added that the restarting of production at Serbia’s largest petrochemicals producer HIP Petrohemija last month also indicated recovery. HIP Petrohemija halted production in July in a bid to agree better terms with its suppliers. In addition to HIP Petrohemija, methanol and acetic acid producer MSK Kikinda restarted production on Wednesday following a 12-month pause.
The government in Belgrade plans to sign a memorandum of understanding with Ikea to formalize an indication on the part of the Swedish furniture maker of a preliminary commitment to build a factory in Serbia over the next five years, local media reported earlier.
Italy’s Fiat will invest 100 million euro in November in preparations for the launch of production of a new passenger car model in Serbia, Dinkic said earlier this month. The car will be produced by FAS, a joint venture of Serbian auto maker Zastava and Fiat, in the central town of Kragujevac.
(1 euro=93.3513 Serbian dinars)