Cheap labor can no longer be the basis for growth

Thanks to a responsible macroeconomic policy, Serbia is entering the crisis caused by the introduction of high U.S. tariffs better prepared than many other countries. However, in order to sustain growth, priorities must include labor law and judiciary reform, with a particular focus on the digitalization of courts. This was the key message at the panel discussion “Macroeconomic Trends in 2025”, organized by NALED’s Fair Competition Alliance.

At the opening of the event, Zoran Daljević, President of NALED’s Fair Competition Alliance and Director of Atlantic Group in Serbia, said that the domestic economy is closely watching how both international developments and internal factors will affect construction, credit policy, raw material prices, and consumption. He emphasized that uncertainty affects all actors in the country and that the business sector expects the new Government of Serbia to accelerate efforts in strengthening economic flows and solving structural problems, in order to maintain the initial advantage the country had going into these new challenges.

Although Serbia’s growth projections for this year have been lowered from 4.2% to 3.5%, Lev Ratnovski, the International Monetary Fund’s (IMF) Resident Representative in Serbia, stressed that this is still among the highest growth rates in Europe. He pointed out that Serbia has "shock absorbers" for potential economic downturns – a moderate level of public debt, a low fiscal deficit, and high public investment in infrastructure projects – but added that to sustain growth, it is essential to maintain the fiscal deficit at the projected 3%.

- A slowdown in growth in markets important to Serbia, particularly the EU, is likely to have an impact here as well. Labor costs in Serbia are no longer low. That’s why it’s important to redirect investment toward sophisticated technologies in order to boost productivity, said Ratnovski. He also emphasized that for investors and for economic growth, one of the key factors is the efficiency and transparency of the judiciary, which can be achieved through the digitalization of procedures and online communication with courts.

He also highlighted challenges such as rising public sector wages, which represent one of the biggest fiscal risks. Ratnovski noted that additional investments are needed in the energy and IT sectors.

- The efficiency of the judiciary and the predictability of the business environment are the first things investors assess in a country, and cheap labor is no longer an advantage for Serbia when it comes to attracting foreign direct investment, said Nikola Vuletić, President of the Executive Board of UniCredit Bank and member of NALED’s Managing Board. He stressed the need to make the domestic workforce more competitive through educational reform, particularly at the primary and secondary school levels, and that universities should be more market-oriented and develop their programs in consultation with the business sector.

- As for the banking sector in Serbia, we currently have historically high liquidity levels, with around 600 billion dinars of surplus in the system. Household deposits have increased, credit activity is growing albeit at a slower pace. So far, we haven’t seen a drop in demand in the banks; durable consumer goods are typically the first to be affected, such as cars or tourism. When it comes to interest rates, the National Bank of Serbia is, in my opinion, taking a very proper and cautious approach, as inflationary pressures still need to be addressed. It is important that Serbia sees greater dinarization discouraging the use of the euro, especially for domestic transactions which also increases resilience to external shocks, particularly currency-related ones, Vuletić added. He noted that banks are introducing ESG compliance questionnaires for companies applying for loans, and this is increasingly becoming part of lending policy and standard banking practice.

Professor Predrag Bjelić from the Faculty of Economics at the University of Belgrade said that Trump's tariff policy has led to the greatest trade shock in history, and its effects are being felt in Serbia as well:

- So far, we are not critically affected, as trade volume with the U.S. is not large, but our trade with the EU is, and those effects could spill over to us. It would benefit us if a global agreement could be reached on this issue. Even more problematic than the tariffs themselves, which are extremely high, is the uncertainty. No one knows if, or to what extent, the measures will be implemented. Companies exporting to the U.S. are waiting to see what will happen. That’s why trade regimes are never changed so abruptly there must be a notice period of at least six months, because businesses need time to adapt. We can’t have a situation where a company ships goods, arrives at the border, and is then told there’s now a 37% tariff.