Serbia

Serbia's economy will accelerate in 2024.

The slowdown in inflation, particularly of food and energy, will support household consumption (67% of GDP in 2022). The latter will also be boosted by the rise in real wages (thanks to the fall in inflation), but also by the increase of the minimum wage (by 18%) and other social measures, such as higher pensions and family allowances. Investment will also be buoyant but could be held back by high interest rates. The National Bank of Serbia (NBS) has not changed its rates since July 2023; the key interest rate is currently set at 6.50%. Despite a slowdown in inflation, the NBS will remain cautious, and will monitor the ECB's and the Fed's rate movements before lowering its own. It is keen to maintain the parity of the dinar with the euro. The Serbian government plans to allocate almost 7% of the 2024 budget to capital investment, which will be devoted to infrastructure development (construction of motorways, schools, etc.). According to an IMF report of December 2023, as part of a 24-month Stand-By Arrangement signed between the Serbian government and the IMF in December 2022, investment in the energy sector is also planned, particularly in renewables. Net exports will negatively contribute to growth due to a faster increase in imports than in exports.

Deterioration in the current account balance, but improvement in the budget balance

The current account deficit is expected to increase in 2024, in line with the trade in goods deficit, which, along with the primary income deficit (including dividend repatriation and reinvestment of foreign investors' profits), is partly offset by the surpluses of the services account (information and communication technologies and transport) and the secondary income account (notably expatriate remittances). The current account deficit is mainly financed by foreign direct investment and partly by the IMF Stand-By Arrangement agreed at the end of 2022. A second review of the agreement at the end of 2023 released €400 million out of the €2.4 billion planned. At the end of October 2023, the SNB's euro reserves amounted to 4 months of imports.

This financial support alleviates financing constraints, reducing potential investor concerns. In exchange for this support, Serbia has agreed to reforms monitored by the IMF. The 2024 budget forecasts a shrinking of the deficit, thanks to an expected increase in revenues, despite higher spending (notably on pensions and the minimum wage). Public debt will continue to fall, helped by the reduction in the budget deficit. The medium-term objective is to further reduce the deficit and bring public debt below 50% of GDP.

The conservative, nationalist Serbian Progressive Party has been under attack since the parliamentary elections

In April 2022, President Aleksandar Vu?i?'s Progressive Party (SNS) won the early elections in April 2022 with 44% of the vote, giving it only 120 seats in Serbia's 250-seat parliament. It also won the presidential election held simultaneously, with 60% in the first round. After large-scale demonstrations in 2023, Aleksandar Vučić dissolved the National Assembly on 1 November 2023 and announced early parliamentary elections, as well as municipal elections on 17 December. According to the official results, the SNS won the parliamentary elections with 46.75% (130 seats), against 23.66% (65 seats) for the coalition, contrary to the polls, which had predicted that there would be no majority. These results were contested by the opposition, who denounced electoral fraud. International observers, notably those from the Organisation for Security and Cooperation in Europe (OSCE), have denounced irregularities. After reading the preliminary conclusions of the OSCE, the European Union concluded that the electoral process needed improvement and reform but did not condemn the results. On 29 December 2023, despite major demonstrations in Belgrade, some of them violent, the Republic's Electoral Commission (RIK) rejected the opposition's appeal to annul the results of the vote.

Internationally, Serbia wants to preserve its chances of EU membership, while maintaining good relations with China and Russia, which is a challenge. Despite its condemnation of the violation of Ukraine's territorial integrity, its failure to implement EU sanctions against Russia has drawn strong criticism from the EU and the US. Russia is Serbia's fourth largest economic partner (behind the EU, CEFTA and China), and exerts a strong cultural and historical influence on the country. At the same time, China is drawing closer to Serbia. It is the second largest investor in the country (9% of FDI in 2022), behind the EU (59%). A free trade agreement was signed between the two countries in October 2023.

Negotiations between Serbia and Kosovo reached a breakthrough in 2023 with the Ohrid Agreement. Although the agreement does not require Serbia to recognise Kosovo's independence, it does prevent Serbia from opposing Kosovo's membership of international organisations such as the European Union or NATO, in addition to requiring Serbia to recognise Kosovo's passports, diplomas and number plates. However, the agreement has not yet been implemented, despite negotiations between the two countries. The European Union declared at the end of 2023 that the implementation of this agreement would be legally binding on both parties and would form an integral part of their respective European journeys.

Last updated: January 2024