EC predicts GDP growth of 1.1 percent in Serbia

EC predicts GDP growth of 1.1 percent in Serbia

The document added that a lower inflation rate than originally planned would also exert a negative influence on government revenues and contribute to the creation of financial pressures.

According to the assessments of the EU executive body, the fiscal situation in Serbia will remain grim in 2015 as well because higher payments on grounds of loan interests and a large share of non-mandatory expenditures pose limits for the flexibility of consumption.

Personal consumption could drop by 1.1 percent this year and by another 0.5 percent in 2015, the EC assessments show.

The unemployment rate in Serbia totalled 22.1 percent of the working age population in 2013 and in 2014 it should increase to 22.6 percent. In 2015, it will drop to 22.5 percent.

The GDP growth in Serbia surpassed the expectations in 2013 totalling 2.5 percent, and the greatest contribution to such results came from the export increase of 16.6 percent on the annual level, states the report.

Despite the positive data recorded in the fourth quarter, the increase of public and personal consumption was negative and their drop totalled 1.7 percent and 1.5 percent respectively for the entire year of 2013.

After several months of increase, real salaries dropped in the first two months of 2014 and will probably remain low in the coming period, the EC stated.

According to the EC conclusions, the exceptionally high unemployment rate in Serbia will limit salaries, while the constant drop of population and the slower loan increase would probably endanger personal consumption.

The very high unemployment rate is contributing to the perseverance of low labour costs and the expected dismissals in the public enterprise restructuring are another factor in this matter as well, the report states.

In the first quarter of 2014, the agriculture sector recorded an increase of 20 percent relative to the same period in 2013, but the construction industry recorded a drop of 25 percent due to the decrease in investments and unfavourable commercial loans.

The EC analysts stated that inflation rate would remain low because low demand, a relatively stable exchange rate and stable food prices are alleviating the inflationary pressures.

The report envisages that the 2014 budget deficit would total around 6 percent of GDP unless additional consolidation measures are implemented, while the country's debt is likely to exceed 70 percent of GDP.