October 5 (SeeNews) - Serbia's economy is expected to expand by 3.2% in 2022 with risk to the outlook tilted to the downside, the World Bank said, affirming its June forecast.
For 2023, economic growth in Serbia is expected at 2.7%, unchanged in comparison with the June projection, the global lender said in its fall 2022 World Bank Europe and Central Asia Economic Update report published on Tuesday.
After a strong recovery in 2021, with its economy growing by 7.4%, several domestic and international factors - the war in Ukraine, increase in international commodity prices, drought, breakdowns in operations of EPS thermal power plants in 2021/2022 and uncertainty over the availability of electricity and gas in the winter of 2022/23 - caused Serbia's economic slowdown, the World Bank said.
Over the medium term, the Serbian economy is expected to return to the pre-pandemic growth levels only after 2024, according to the report. For 2024, the World Bank projects an increase of Serbia's gross domestic product of 2.8%.
"Serbia still faces challenges that limit its potential growth both in the short and medium to long term. Most importantly, Serbia needs to further remove bottlenecks for private sector investment including toward greener growth. These include a deteriorating governance environment, a lack of infrastructure, and an unreformed education sector, which creates skills mismatches in the labour market. With limited space for future stimulus packages, structural reforms are needed to bring the economy back to sustained growth, boost jobs and incomes and strengthen resilience to shocks," the report reads.
Solid GDP y/y growth in the first (4.3%) and second (3.9%) quarter was driven by consumption and better-than-expected export performance. As a result, the employment rate increased and reached a record level of 50.9%, and unemployment declined to 9.2% in the second quarter, the World Bank noted. Budgetary revenues overperformed in 2022 thanks to a higher than planned collection of VAT and CIT. In the first half of the year, total revenues were 15.2% higher, compared to the same period in 2021, and expenditures increased by 13%.
Inflation is expected to average 11.5% in 2022, before slowing down to 9.2% in 2023 and 3.7% in 2024.
The latest World Bank GDP growth forecast for 2022 is lower than that of Serbia's government, which predicted an increase of 3.5% last week.
The economic growth of the Western Balkans region is seen at 3.4% in 2022, down from 7.7% in 2021.
In the Western Balkans region, "growth is projected to remain at an average of 2.9% over the forecast horizon, as EU accession reforms and investment mitigate the negative impacts imposed by higher energy and food prices, disruptions to trade and investment flows, and spillovers from the slowdown in euro area activity," the World Bank said.