[TV N1] Increased fiscal deficit and reduced investments as the key effects of crisis

Serbia's economy is very energy inefficient, consuming a large amount of energy to produce one unit of GDP. Compared to the European Union, that is almost four times more, according to the latest analysis conducted by NALED on the impact of the war in Ukraine on the Serbian economy. Ivan Radak, Head of Public Relations Unit from NALED, spoke on the show Dan Uživo on TV N1 about where we are most vulnerable, what causes the greatest concern among businesses, what are their expectations from the crisis.

- Now that we have a problem in the energy sector, it exposes a systemic problem, and that is high import dependence. We import a large part of energy - we procure three quarters of crude oil from abroad, we import more than 80% of gas from abroad, mainly from Russia, we supply crude oil mainly from Iraq, but 18% also from Russia. So, if something happens with the interruption of supplies from Russia, we have a serious problem, Radak explained.

According to him, the research showed that the sectors that will be most affected by the crisis are energy, followed by transport, agriculture, food industry, construction, as well as trade. He reminded that the price of gas went up by 178% in a year, that food prices rose by 22.8%, and that we have a large increase in oil prices of 63.8%. However, what can make us happy is that food prices have started to fall slightly globally since the beginning of the war, which is an encouraging trend.

- The greatest risks as seen by businesses are inflation and the growth of prices. Last year we had 7.9% inflation, and already in March we exceeded 9%. We will have another year of high inflation, which is not good at all, and on the other hand, we will have an economic downturn. We had 7.5% growth last year and that was great because we need growth rates above 5 or 6% per year for accelerated development, however we will now probably have below 4%, which is better than a recession but not enough for Serbia to keep up with the European countries, Radak pointed out.

When asked about the forecasts given by businesses, he explained that the respondents are mostly pessimistic, that 52% of the respondents say that the effects of the crisis will last up to two years, while a fifth estimate that they will last longer than two years. This means that almost three quarters of businesses expect the crisis to last two years and longer. Other respondents are more optimistic, and predict the crisis for another six months or a year, assuming the war ends very quickly.

As he explained, the good thing is that our economy is more oriented to the market of Serbia, the countries in the region and, above all, the EU.

- We are not so export-oriented towards Ukraine and Russia and we will not have many problems there, because we mostly import raw materials from there. Ukraine and Russia are important because of energy, because of cereals, metals and fertilizers. That is why our businesses are afraid of interrupting the supply chains with those raw materials, the second place refers to the growth of energy prices because we see that the gas prices are growing, followed by high inflation, as well as falling demand, said Radak.

It is interesting that the respondents expect the negative effects of the crisis on the entire economy, but they are more optimistic when assessing the impact of the crisis on their own company.

- That encouraged us, we see that they look more cataclysmically at the global economy and the economy of Serbia, but when it comes to them, then they are far more positive. So, two thirds of businesses say that they expect moderately negative consequences, and the rest that they will be very negative. When it comes to their own company, three quarters say there will be moderate consequences, while 40% of them will not change prices, and 88% say they will not lay off workers, Radak explained.

When it comes to assessing the government's response to the crisis, Radak said that the impression was that the government could have done more because 56% said that the government's measures were somewhat adequate. As he further stated, the best rated measures are the limitation of the price of oil derivatives, the limitation of the price of gas, the reduction of the excise tax, as well as the measures of the NBS against inflation. According to the research, businessmen expect the government to provide them with more favorable working capital loans in order to overcome the most critical period.

According to Radak, the key consequences of the crisis are the growth of the fiscal deficit - the deficit in the budget, the effect of which is the growth of public debt, then the reduction of investments. These are certain consequences that will cause our economic growth rate to fall.

- What is a positive effect is the attraction of investments that are withdrawn from Russia. So, Western and Russian companies are leaving that market and coming to Central Europe. What is needed is for us to react quickly, to solve all procedures related to investments faster (faster obtaining building permits, registration in the cadastre). If we used that, we could get some benefit, Radak concluded.

You can watch the entire interview below.

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