The IMF has announced that Serbia is expected to experience economic growth

Inflation in Serbia is projected to reach 5.2% in 2026, after which it is expected to gradually decline to 4.9% in 2027 and 3.0% in 2028.The IMF states on its blog that Europe is facing a new energy shock triggered by the war in the Middle East, which is slowing growth and pushing inflation higher again, while the euro area is projected to grow by only 1.1% in 2026 and the European Union by 1.3%, amid a high level of uncertainty.The analysis, titled &ldquo;Reforming Europe Under Pressure,&rdquo; prepared by IMF Europe Director Alfred Kammer, warns that Europe is once again at a &ldquo;familiar crossroads,&rdquo; as it faces weaker growth, lower investment and consumption, and the risk of worsening financial conditions.In a downside scenario involving a prolonged disruption in energy supply and tighter financial conditions due to the Middle East conflict, the European Union could move closer to recession, with inflation rising toward 5%.Such a development would not spare any European economy, including the countries of the Western Balkans.According to the IMF, the key response must be a combination of disciplined fiscal and monetary policy.Central banks should remain focused on anchoring inflation expectations, while carefully monitoring second-round effects of rising prices.In the euro area, there is room for a cautious approach, with a cumulative interest rate increase of around 50 basis points expected by the end of the year, while in the United Kingdom restrictive policy is expected to remain in place due to elevated inflation risks.Fiscal policy, on the other hand, must remain within available limits, Kammer says in the report.Highly indebted countries have no room to increase deficits, while even fiscally stronger economies face pressure from rising defense spending, population aging, and the energy transition.Rising government bond yields already indicate market sensitivity to fiscal discipline, the analysis notes.The IMF particularly warns against the inefficiency of broad support measures such as price caps, universal subsidies, or fuel tax cuts.During the 2022 energy crisis, European governments spent an average of 2.5% of GDP on support, of which more than two-thirds was untargeted.Such broad measures, besides burdening budgets, distort market signals that encourage energy savings and investment in alternative sources.The analysis shows that protecting the poorest 40% of households would require only about 0.9% of GDP.Germany is cited as an example of a more efficient approach, having mitigated the impact of rising prices without fully suppressing price signals.The recommendations focus on targeted and temporary support for the most vulnerable, with clearly defined time limits to avoid long-term fiscal burdens and reduced investment in energy infrastructure.In the long term, the key lies in strengthening the resilience of the European economy, the IMF says.Industrial energy prices in the European Union remain about twice as high as before 2022 and significantly above U.S. levels, reflecting structural disadvantages linked to import dependence and fragmented energy markets.More than 50% of electricity production in the EU already comes from low-carbon sources, reducing exposure to oil price shocks, Kammer notes.Further integration of the energy market, development of cross-border infrastructure, and preservation of emissions trading systems are seen as key steps toward more stable and lower energy prices.According to IMF estimates, closing structural gaps and deeper integration of labor and product markets could increase Europe&rsquo;s productivity by 20% and generate up to &euro;800 billion in additional private investment over the next decade, while boosting per capita output by as much as 35 percentage points.&ldquo;There is pressure to postpone difficult choices when crises occur. Europe has already succumbed to that temptation. By delaying reforms, it risks slower growth, higher debt, and reduced capacity to act when the next shock comes,&rdquo; the report says.It adds that Europe must continue transforming its energy sector, increase the share of renewables, and further integrate the energy system across the continent.&ldquo;Europe must reform under pressure. The current shock is not a reason to delay. It is another reason to continue with the reform agenda,&rdquo; the IMF concludes in the analysis published on its website.

The IMF has announced that Serbia is expected to experience economic growth

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