COVID-19 Analysis

Economic Consequences for Serbia
Analysis15.05.2020Mihailo Gajić
Covid19 Serbia, Economics
FNF

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Until recently, the spotlight has been on the pandemic – are we going to get infected; will the healthcare system be able to respond to these challenges; how to prevent the spreading of the virus? However, the epidemiological situation has beeen steadily improving in many countries, including the Western Balkans (WB): the total number of new cases is decreasing day by day, as well as the number of deaths. This brings us closer to the normalization of the situation, especially now that the economic and social impact of the measures to contain the virus are becoming evermore evident. So new question are starting to be raized: how will this affect the economy; how can we cope in the future with this pandemic or new ones like it; how to return to the normal way of life?

For the time being, it seems that the WB countries have managed to evade the most severe situation that is present in Spain or Italy, so their healthcare systems were not overwhelmed, although operating under severe stress with limited resources. This is visible in the number of death per million of inhabitants.

The measures introduced in order to slow down or prevent the circulation of the virus had a significant impact on the economy. The sector of personal services, including tourism, hospitality and personal care services. The industrial production has also been hit, due to closing down the facilities due to health measures or cleft supply chains. For example, total Serbian exports in March 2020 were just 89% of the March 2019 level (down by 200 million euros), which was mainly the impact of the lockdown introduced in the second halfo of the month. The economic prospects for the region are bleak, although less severe than the projected recession in the euroyone. Countries with strong tourism sectors, such as Croatia and Montenegro will be more severely hit, while this impact ill be less pronounced in countries with stronger agriculture sectors and industrial production less integrated in sectors that are will be significantly hit by the weakening of the demand (for example, car manufacturing) such as Serbia and North Macedonia.

In order to minimize the economic and social cost, it is an imperative to minimize the length of the introduced lockdown, and help viable businesses survive the problems arising from the loss in revenues that will trigger liquidity issues, and help them maintain job placements, all of which will help economy recover more quickly in a sustainable way. the serbian government, as other governments in the region, has already introduced some economic measures to help the afected companies, such as deferral of payment of profit tax for companies, and income tax and social contributions for employees for three months to 2021; paying the minimum net wage to SME companies for each employee (half of the minimum wage for large corporations); introducing a guarantee scheme for liquidity loans through private banks and the Development Fund and dolling out 100 euros for each inhabitant above 18 years of age to boost demand. What else should be done, or should be done differently?