EY Serbia’s Macroeconomic and Business Pulse

EY Serbia presents two related reports, one focusing on economic context, and second on recent performance of largest local companies in Serbia

EY Serbia prepared a set of reports, delving into both macroeconomic and business perspectives of recent economic trends in Serbia. While EY’ Macroeconomic pulse reports on broader economic context and trends in Serbia, and provides our views on economic outlook, the EY’ Business pulse investigates how Serbia’s largest companies fared through this economic context in recent years and what might be expected in the coming period.

EY Macroeconomic Pulse shows that Serbia’s growth recently is speeding up on the back of local consumption and investments. Real growth plausibly reached cca 4% YoY in the first three quarters of 2024, following a milder 2.5% growth in 2023 and 2022. Behind this speedup is a fiscal expansion, reflected in real increase of public sector wages (+6% YoY in H1 24 in real terms) and pensions (+15% YoY), public CAPEX, but also in an increase in private sector wages (+8%) and in a tight labor market – all these factors building into an improved household demand and investment activity.

While growth speeds up, Serbian economy is structurally changing. Both reports show how Serbia’s economy have been undergoing far reaching structural changes recently. For example, there have been massive investments recently in several industrial sectors, ranging from mining to automotive, and which might result in increased exports and output in the coming years. Also, China and other non-EU players are increasingly present, as suggest their rising share in total investments or in Serbia’s exports. There have also recently been massive inflows of foreign citizens – especially from Russia and Ukraine, influencing numerous local markets. Also, adverse weather is increasingly frequent and disastrous, and both reports examine weather’ effects on broader economy as well as on the most heavily affected firms and sectors.

Serbia’s largest companies seem to have fared relatively well amidst rising uncertainties as report EY Business Pulse. The largest 1% of Serbia’s companies remained relatively profitable amidst increasingly complex environment. Commodity prices – especially the critical ones like oil and natural gas – took off in 2022 and only slightly moderated in 2023 and 2024, while, locally, wage and financing costs soared in 2023 and partly in 2024; all in context of soaring inflation, labor shortages and poor economic growth in Serbia’s key trading partners, like Italy or Germany. In these circumstances, the 2023 revenues of the largest companies rose nominally by about 7% YoY – or stagnated when accounted for inflation – yet managed to outpace the increase in costs, which increased by 6%. The top 1% largest companies even had their total EBITDA growing by 14% and have even slightly increased their EBITDA margin relative to 2022 levels.

Looking ahead, in the remainder of 2024 and in 2025, Serbia’s growth might hover around 4%, but some risks to this scenario remain elevated. Fiscal room is for now very ample, while public investment projects ahead of the 2027 EXPO are very ambitious, which could help sustain the ongoing pace of investment activities – solid fiscal position is also mirrored in the recent increase of Serbia’s credit rating to investment grade (BBB-) with S&P. In parallel to this, we anticipate the consumption to keep exerting positive contribution, as imply the announcements of further hikes of public sector wages and pensions. Net exports might also improve on the back of the recent investment activity in mining and some industrial sectors, such as automotive. However, ongoing geopolitical tensions, relatively tepid growth of traditional trading partners in EU, all coupled by increasingly frequent and devastating weather conditions might affect both price and growth prospects.