INFLATION JUMPS TO 6 PERCENT BY THE END OF THE YEAR: World Bank presented forecasts for the Serbian economy!

The main pressure on consumer prices in Serbia in the coming period will come from the energy sector, it was said today at the Belgrade office of the World Bank.

As Lazar Šestović, senior economist of the World Bank, explains, the projection until the end of the year says that an increase in inflation to “6 percent or slightly over 6 percent” is expected.

“Energy products currently make up two-thirds of inflation in Serbia. Our projection for Serbia corresponds to the current view of the impact of energy prices, and how they can ‘push’ domestic inflation. Of course, that can all change if international markets prove to be more resilient to the ‘shocks’ happening in the Middle East, but the assessment for Serbia was made based on the information we currently have,” Šestović clarified.

Namely, Šestović called the creation of economic projections for 2026 – in which events on the international economic and political scene follow one another lightning-fast and unpredictably – a “moving target,” because every new piece of information must be included in the analysis and can potentially affect the overall picture.

For now, however, the World Bank’s expectations for Serbia are that our economic growth will accelerate slightly this year, to 2.7 percent compared to last year’s 2 percent, only to reach 3 percent in 2027.

Inflation will, as they expect, remain elevated throughout the year, partly due to the expected effect of the conflict in the Middle East on energy prices, only to stabilize in the medium term and return within the target range of the National Bank of Serbia (from 1.5 to 4.5 percent).

The risks to these expectations are, besides the development of the situation in the Middle East, also uncertainties in the European auto-industry as well as the operations of domestic state-owned enterprises, where, according to the assessment of international institutions, reforms are needed, especially in the energy sector.

Resolving the issue of NIS

Šestović expressed hope that the conflict in the Middle East will not significantly delay the resolution of the status of NIS, with the assessment that the crisis related to NIS has already been lasting for quite a long time and that it is important to reach a solution as soon as possible.

“That is one of the key issues for our country at this moment, because it is part of the ‘equation’ regarding the energy security of the country. The sooner a solution is reached, the better. There are deadlines set by foreign administrations, so we hope that those will be respected and that we will have some known solution by the end of May,” said Šestović.

Domestic investments needed

Geopolitical tensions, on the other hand, do not only affect the prices of imported energy products, but also the general sentiment of investors, which further complicates the making of long-term plans.

At the same time, Serbia, together with other countries in the region, faces a significant decline in the inflow of foreign capital, but World Bank experts believe that domestic investments are an even bigger structural problem.

“Domestic investments are an area in which we are truly far below all the countries of Eastern Europe. That problem has been lasting for 15 years already and represents the key reason why Serbia generally grows slower than it could,” warned the World Bank economist.

Slowing down of economic activity in the Balkans

At the level of the Western Balkans, a trend of slowing down economic activity is noticeable, followed by specific problems in the labor market, according to the latest report by this international organization.

Richard Record, chief economist for the Western Balkans, said that average growth in the region fell from 3.7 percent to 2.6 percent last year, and as one of the specific obstacles “holding back” the entire region, he singled out the inadequate use of human capital.

“In the Western Balkans, there is a large source of untapped talent, especially among women and youth, but with appropriate measures and policies, an additional 2.8 million people could be included in the workforce, especially women and youth,” Record said.