Pavle Petrović: Serbia is going in the wrong direction, inflation is creating the illusion of higher growth

There are numerous indications that Serbia's current economic growth model, based on state and foreign investments, has already begun to be exhausted, but it is not being abandoned, said former president of the Fiscal Council and regular member of the Serbian Academy of Sciences and Arts Pavle Petrović.

- For EUR 840, you can now buy what you could buy for 540 six years ago, and the inflation is creating the illusion of higher growth - stated Petrović in an article he wrote for Radar.

According to his assessment, Serbia currently has a solid economic growth trend of around 4%, one percentage point faster than the countries of Central and Eastern Europe (CEE), which is good, but only at first glance, because not all growth is equally high-quality and sustainable.

- And Serbia's current economic growth is neither high-quality enough, nor sustainable in the long term - said Petrović.

He added that Serbia's economic growth model was fundamentally different from the CEE countries. While they increasingly base their growth on innovation and the development of advanced high-tech sectors, Serbia relies on large state investments and a strong inflow of foreign direct investment (FDI), which cumulatively reached almost EUR 25 billion from 2017 to 2023.

- However, these are not investments that modernize Serbia, because foreigners have mainly invested in traditional industries - mining, production of tires, basic metals, assembly and production of basic components for the automotive industry... This exploits natural resources and cheaper labor, and does not bring in knowledge and advanced technologies that would transform the domestic economy and help it join the developed Europe - stated Petrović.

- This is, therefore, a state growth model, driven by public investments (state and public enterprises) and FDI, which the state attracts in various ways, and not an entrepreneurial model, based on initiative, innovation and investment by the domestic private sector, which can ensure high-quality (highly productive) and sustainable economic growth - emphasized Petrović.

- There are indications that the current unsustainable model of economic growth in Serbia has already begun to exhaust itself. Public investments drive GDP growth on two grounds. The first is when they increase strongly from year to year, because such a change hires new employees, more construction operations, and encourages greater production of construction materials. However, that channel has now been exhausted, since state investments have reached the maximum level that can be financed. This is also evident in the fact that some large projects, such as the construction of the subway, are being postponed - stated Petrović.

He added that the second positive effect of public investments occurred when they were completed and when the built infrastructure enabled the expansion of the private sector, which had previously been undisputed, when the most important road corridors had been under construction, but was now increasingly questionable.

- How much long-term benefit will the economy have from the National Stadium or EXPO? How much benefit is there from projects whose price is enormous and the quality of the works is questionable, including, as we now see, their reliability and safety? - asked Petrović.