Protests were certainly not the main culprit for the slowdown in economic growth in the first quarter of this year, but they exposed the fact that it has been standing on increasingly weaker foundations in recent years.<\/p>\n
President Vu\u010di\u0107, even before the data was released, stated that the protests had scared investors and tourists. It turned out that the protests did indeed scare one investor \u2013 the state, because, in the President's own words: \u201eNow there is no son of a bitch who will sign any paper.\u201d This is also evident from state capital expenditures, which in the first quarter of the year, a quarter in which an acceleration of expenditures, primarily related to Expo, was expected, actually fell by 3.7% nominally, and by as much as 7.8% in real terms. Fast state investments have, until now, served to maintain economic growth, even though export growth has been slowing down.<\/p>\n
It would seem that President Vu\u010di\u0107 has finally exhausted quick ways to boost economic growth.<\/p>\n
Structure of growth and changes in FDI<\/strong><\/p>\n According to RZS flash projections, GDP growth in the first quarter of this year compared to the first quarter of the previous year fell to 2.0%, compared to expectations of 3.5%. These expectations took into account an exceptionally high base in the first quarter of 2023, and for the whole of 2025, 4% was expected. The key contribution to this underperformance was the slowdown in public investments. There was also a slowdown in foreign capital inflows, which halved, but compared to the exceptionally high inflows in the first quarter of last year.<\/p>\n Serbia's solid economic growth over several years has so far been primarily linked to strong FDI inflows. Serbia stood out because during the period from the pandemic to the end of 2024, they remained relatively high and stable (increasing from 3.8 billion in 2020 to 5.2 billion euros in 2024). However, FDI is not a homogeneous category. In the observed period, their composition and the perspective of their contribution to the country's sustainable development have significantly changed.<\/p>\n The frequent ribbon-cutting ceremonies in front of new, foreign, mostly German, factories have accustomed the Serbian public to equate foreign investments with investments in the manufacturing industry. These are primarily aimed at creating as many jobs as possible, which, at the very beginning of this regime, was indeed a priority. FDI in the export-oriented manufacturing industry also works well because, as a rule, they bring knowledge, technology, and generate foreign exchange inflows. However, investments in the manufacturing industry are only one component of FDI. They accounted for only 38% of the total in 2021, when they realistically peaked (1.5 billion euros). Since then, they have been falling, so in 2024 they account for only 0.6 billion euros (11% of the total).<\/p>\n Since 2021, only FDI in mining has steadily increased \u2013 in each of the last two years, they have doubled, reaching 1.4 billion in 2024. Naturally, the production and export of copper ore and concentrates have also grown, which have undoubtedly contributed to the overall measured GDP growth. However, given the lack of transparency in the exploitation conditions, assessing the real effect of this project on growth and development, especially in comparison to possible alternatives, would require a separate study. In any case, we do not doubt that this is a missed opportunity. While copper prices are booming on the global market, with prospects for further long-term growth, the mining royalty, as well as Serbia's negotiating power with China, are low.<\/p>\n The largest component of FDI in 2024 (1.5 billion) consisted of investments in the construction and real estate sector, whose contribution to GDP growth, and especially to foreign exchange, is most questionable after the investment period. Their actual amount is also questionable. On the one hand, it is possible that in some cases, state borrowing under bilateral credit agreements is first reflected in statistics as capital inflow with construction companies from the respective country, and only later as a debt of the Republic of Serbia. In that case, it is not an inflow of private, market-driven capital, but Serbian public funds. It is also likely that, in the context of corrupt activities, part of this money consists of \u201ewashed\u201d domestic capital, especially since a counterpart to this large item in the country breakdown can usually be seen in inflows from tax havens.<\/p>\n Exports \u2013 crises and opportunities<\/strong><\/p>\n The movement of merchandise exports, and especially of manufactured goods, follows the described investment flows and has been contributing less and less to economic growth for a long time. Since the structure of FDI flows has reversed, its real growth has halved in both 2023 and 2024, and in the first quarter of 2025, it is even decreasing in real terms, regardless of the growth in exports of ores and non-ferrous metals. The main \u201eculprit\u201d is, of course, the difficulties in the European economy, primarily the German one. These have particularly affected the part of Serbian exports included in the global value chains of the automotive and related industries, as well as those industries that rely most heavily on cheap labor. The increasingly \u201elowest\u201d wages, along with the appreciation of the dinar, have undoubtedly contributed to this.<\/p>\n Thus, during 2024, we witnessed a decrease in the number of employees in a significant number of foreign factories, for example, Jura, Mei Ta, as well as the closure of others \u2013 Adient, Siting (closed a plant). The decline in exports of these products in the first quarter of 2025 accelerated to 430 million euros, almost as much as in the whole of 2024.<\/p>\n It is clear that these investors are not packing up because of the protests, but rather it is a longer-term and deliberate process. Even so, it is relatively fast, as investors who came with the least capital investment and the least prospect of their own development, easily attracted by subsidies or political agreements, are leaving. <\/p>\n On the other hand, there are also two good stories in exports. One is the strong growth in service exports \u2013 especially ICT (nominally 17% in the first quarter of 2025) \u2013 which is in line with the positive trend in FDI inflows into this sector. These inflows, we must emphasize, the protests could only have encouraged. However, domestic companies also export IT services, which is in line with the second piece of good news. And that is that merchandise exports from sectors where Serbian manufacturers are predominantly present are still growing \u2013 food, metal, plastics industry, wood (furniture and other machinery are falling recently).<\/p>\n From conversations with these businesspeople, we learn that they are navigating conditions of slow European demand by offering competitive goods when European companies seek savings, or by turning to markets in former \u201ethird world\u201d countries. They are also doing well in the wider region. Of course, this represents a missed opportunity, as domestic production and exports are not only inadequately supported but are also discriminated against by tax and subsidy policies, and weak export support that puts them at a disadvantage compared to the competition.<\/p>\n Mortar in exchange for exports<\/strong><\/p>\n It is important that during this period, public investments have replaced commodity exports in the role of the engine of economic growth. State investments in 2021 reached 7% of GDP and have grown sufficiently fast since then to maintain, and even increase, that level in 2024. This would be perfectly fine if it led to increased productivity of the domestic economy, and especially for people with the lowest wages \u2013 if their education and on-the-job training were improved, if they were prepared for more complex jobs, or if the infrastructure abandoned by foreign factories was prepared, with appropriate programs, for domestic SMEs that are crying out for industrial locations.<\/p>\n Investment in road infrastructure was certainly productive in earlier years, when investments were made in obvious, urgent needs, and with less haste. However, in recent years, the selection of investment projects has been made without clear criteria, consists of too much cement, not to say mortar, and too little equipment, and is done at the expense of investing in the state's capacity to provide adequate support and development services to businesses and citizens.<\/p>\n The collapse of the canopy of the Novi Sad railway station is not an isolated incident, just as the accident at TENT 3.5 years ago was not an isolated incident, but the tip of the iceberg of delayed or poorly executed investments in EPS and other public enterprises.<\/p>\n Conclusion<\/strong><\/p>\n For President Vu\u010di\u0107, the slowdown in state investments represents a huge problem. Not only does it increase the risk of missed deadlines for Expo, but, as we have outlined here, the key (short-term) momentum of economic growth is being lost. And this is precisely at a time when, in conditions of political crisis, it is particularly necessary for the President to produce results. According to public statements, the President still believes that lost time can be made up.<\/p>\n For citizens, the problem is that the political elite blames protests for problems it is unable to solve. It is unable to boost the productivity of the economy through investments, because that requires dialogue with it; it is not capable of conducting them quickly and responsibly, because that requires competent and motivated civil servants. It is not capable of seeing, let alone activating, the potential hidden within the domestic economy \u2013 because that requires fair market competition, and again \u2013 competent and motivated civil servants, as well as productive and service-oriented public enterprises. It is unable to seize the better opportunities that are nevertheless opening up in the restructuring European economy \u2013 because that requires the work of an entire network of people and competent and motivated civil servants.<\/p>\n In any case, it is better for citizens if economic growth slows down, than for some \u201emama's boys\u201c to give in to pressure again.<\/p>\n Author of the text: Kori Udovi\u010dki, Director and President of the CEVES Management Board<\/p>","protected":false},"excerpt":{"rendered":" Protests were certainly not the main culprit for the slowdown in economic growth in the first quarter of this year, but they exposed the fact that it has been standing on increasingly weaker foundations in recent years.<\/p>","protected":false},"author":11,"featured_media":9160,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[99],"tags":[117,60,71,69,199],"class_list":["post-9187","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stav","tag-ceves-stav","tag-investicije","tag-izvoz","tag-msp","tag-stav"],"acf":[],"yoast_head":"\n