Economic Effects of the Corona Crisis in Serbia

Economic Effects of the Corona Crisis in Serbia

The global corona crisis also changed the economic development dynamics in Serbia in March 2020 almost overnight. The shutdown of public life, the closure of restaurants, retail and traffic routes, the sending of workers home or, in some cases, to the home office all contributed to the drastic collapse in economic output. However, the forecasts are international financial institutions comparatively positive for Serbia. At the end of March, for example, Serbia was predicted to see an economic slump of just 2.3% GDP in 2020, the lowest value in a regional comparison, and strong post-crisis growth of 7.5% GDP in 2021. However, some economists doubt the forecast for 2020 as too positive. They refer to the effects of the strong trade relations with Italy, Germany and China, as well as the expected collapse in transfer payments from the diaspora from, above all, EU countries, which are likely to be significantly lower than in previous years as a result of short-time working (2019 figures payments account for 8.1% of GDP).

Serbian government officials and international institutes refer to the aid package with regard to the comparatively mild economic consequences of the pandemic totaling 5.1 billion euros, which the government put together at the beginning of the crisis. The package includes deferred payments for wage tax and social security as well as income and profit tax prepayments, direct payment of 50/100% of the minimum wage for small, medium and large companies, extensive loans and guarantees for the private sector as well as a 10 percent wage increase in the healthcare sector (according to the in wage cuts made in recent years). In addition, there is a measure that is considered more populist than economically sensible, the lump sum payment of 100 euros to all citizens of age after the state of emergency has ended.

 

River Tara Serbia

River Tara Serbia

According to softwareleverage, Serbia is a country located in Southern Europe. Serbia received support from numerous countries for the battered health care system in the form of material aid supplies, especially protective equipment and ventilators. The EU provided € 15 million in emergency aid. A further 93.4 million euros are to be reallocated from ongoing projects and existing pre-accession aid, the so-called IPA fund, to mitigate the socio-economic consequences of the pandemic. Serbia turned down an offer from the IMF for emergency loans, making it the only Western Balkan country to refrain from participating in an EU loan program worth EUR 3.3 billion for the countries in the vicinity of the Union. President Vucic justified the rejection with the stable budget situation and access to other loans on more favorable terms. However, some economists suspect the government

With the end of lockdown and state of emergency and the reopening of the borders for the movement of people (the movement of goods was open throughout) at the same time export bans for strategically important products (such as medical products) were lifted. The government linked the complete opening up to a rapid economic recovery, which, however, is only getting off to a very inconsistent basis. Sectors such as the pharmaceutical and food industries ran at full speed during the closure and recorded an increase in production. There is hope for a relatively quick recovery for the catering sector and most of the retail sector, which had almost completely ceased operations. Other economic sectors such as the auto industry,

International economic institutes have revised their relatively favorable forecast for the pandemic-related recession downwards compared to March – the IMF is now assuming negative growth of 3% GDP in 2020, the European Commission of 4%. These are still relatively good figures compared to the neighboring countries of the region, which is due on the one hand to the relatively great importance of the agricultural sector and the comparatively low economic importance of tourism.

At the end of July, the Serbian government passed a second aid package totaling 560 million euros under the impression of renewed increasing numbers of infections and new restrictive measures. The package includes deferred payment of taxes and social security contributions as well as direct payments of 50-60% of the minimum wage for small, medium and large businesses for an additional two months.

In September the European Bank for Reconstruction and Development (EBRD) put the first more reliable figures on the table based on economic data from the first half of 2020. According to this, GDP was expected to decline by a total of 3.5% in 2020, followed by growth of 3% in 2021. In the first quarter, GDP had grown by 5%, in the second quarter it then shrank by 6.5%. Overall, both foreign direct investment and total income of workers and employees in Serbia fell by a quarter in the first half of the year. In the second quarter of 2020, according to the EBRD, her total number of hours worked decreased by 15%, which without the cushioning measures of the Serbian government, the loss would have been equivalent to half a million jobs. The measures, which were also praised by the Development Bank, increased public debt by 5% by the middle of the year or to 58% of GDP.