BELGRADE (Serbia), July 23 (SeeNews) – The European Commission said it expects Serbia's economic growth to quicken to 3.5% in 2018 from 2.0% last year, based on the country's economic reform programme (ERP).
The Serbian gross domestic product (GDP) growth is expected to accelerate to 3.5% in 2019, before accelerating to 4.0% in 2020, the EU Commission said last week in its report containing its assessments of the 2018 ERPs of countries that are candidates or potential candidates for EU membership.
The ERP includes a macroeconomic and fiscal policy framework as well as structural reform plans to boost competitiveness and long-term growth. The ERP exercise also aims to help enlargement countries develop their institutional and analytical capacities and to prepare them for participation in the EU’s multilateral surveillance and economic policy coordination procedures once they become member states of the EU.
Serbia's economic expansion is expected to continue in the following years, mainly on the back of recovering private and public consumption, while domestic demand is set to increase steadily, while growth contributions from net exports remain marginal and negative throughout most of the period covered by the programme, the Commission said.
"Contrary to previous years, economic growth is likely to be supported by an expansionary fiscal policy. The ERP expects the negative output gap to close and even turn slightly positive by 2020 as the economy grows above its potential," the report reads.
The main challenges to the growth scenario are linked to the pace of implementation of structural reforms, in particular, further improving the performance of state-owned enterprises and reforming the public administration.
"Externally, developments in the EU, which is the main export market and source of most of Serbia’s foreign investment, exert a major influence on the country’s economy. As economic growth largely depends on capital flows, risks also stem from the impact on them of monetary policy adjustments by the European Central Bank and the Federal Reserve," the Commission said.
Serbia's fiscal policy is projected to turn expansionary, while total expenditure is set to decline further but to become more supportive of growth, driven by a steady decline in the revenue share in GDP, in particular, non-tax, excise duties, and corporate tax revenue.
Inflation is forecast to stay close to the Serbian central bank target of 3%, while the current account deficit will start shrinking again after going up in 2017, falling to 3.9 % of GDP by 2020, the Commission said.
In May, the Commission said it maintained its forecast for Serbia’s economic growth in 2018 at 3.3%, backed by domestic demand and investment activity. The GDP growth is expected to accelerate to 3.5% in 2019 as the unemployment rate is foreseen to decline to 10% next year from 12.1% in 2018, the Commission said in its Spring 2018 Economic Forecast.