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Floods to drive Serbia into recession

Tuesday, 3 June 2014 - 8:28am IST | Place: Belgrade (Serbia) | Agency: Reuters

The worst flooding to hit the Balkans in living memory looks likely to push Serbia into recession this year, two leading Serbian economists warned on Tuesday.

Miladin Kovacevic, deputy director of Serbia's Statistics Office, told Reuters his "educated guess" was for a contraction of about 1.5 percent due to the damage suffered by the agricultural and energy sectors in last month's floods.

Some 65 people died, mainly in Serbia and Bosnia, last month after the heaviest rainfall since records began more than a century ago caused rivers to burst their banks and triggered landslides. The floodwaters damaged farmland and energy infrastructure, and made a lake out of a large open-cast coal mine that feeds Serbia's main power plant.

A candidate to join the European Union, Serbia already faced an uphill struggle in securing growth targeted at around one percent for this year, down from 2.4 percent in 2013.

Vladimir Vuckovic, a member of the Fiscal Council, which advises the government on economic policy, said he also expected gross domestic product (GDP) to contract. "By how much, one percent or 1.5 percent, that remains to be seen, because anything more precise at this moment would only be guesswork," he told reporters.

An April flash estimate by the Statistics Office saw growth in the first quarter of 2014 at 0.4 percent.

In the wake of the floods, the European Bank for Reconstruction and Development (EBRD) said it would revise its growth forecast of 1.5 percent for Serbia, estimating the damage at between 1.5 billion and 2 billion euros ($2-2.7 billion).

Both economists said Serbia's consolidated budget deficit - which includes subsidies and sovereign guarantees for loss-making state firms - would also rise. The deficit is currently forecast to be 7 percent of GDP, but the Fiscal Council has already warned that this figure is over-optimistic.

"In the first four months, the deficit stood at 91.7 billion dinars, or half of what was projected for 2014," Kovacevic told Reuters. "However, there should be a budget revision and it is usually sometime mid-year," he said.

Serbia's government had pledged to keep its budget deficit in check in the hope of securing a new precautionary loan deal with the International Monetary Fund. However, the Fund said last week it does not expect to resume loan talks until the autumn, later than Serbia hoped, saying the government first needed to formulate its economic agenda and assess the flood damage.


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