MACROECONOMIC INDICATORS AND ECONOMIC TRENDS IN THE REPUBLIC OF SERBIA IN 2006

The 2001-2006 period was characterized by a series of reforms, established macroeconomic stability and a sustainable and stable growth, restructuring of large systems, privitisation of companies and by initiation of integration with the EU including compatibility of many laws and regulations in the fields of the economy and society with those of the EU. Production in the post-2000 period occurred in conditions of positive processes of economic transition and reform of the taxation system, labour market and the social sector, coupled with a stable dinar (national currency) exchange rate and continued rise of foreign currency reserves. Prices and trade were considerably deregulated and liberalised. Relations with international financial institutions were regularised. Significant progress was made in the implementation of structural reforms, especially in privitasing companies and consolidating and corporatising the banking sector. A high rate of economic growth, inflation below the projected level, increased exports and foreign direct investment, and a budgetary surplus were the most important features of macroeconomic performance in 2006. This was due to appropriate measures, monetary or credit or fiscal, being taken as well as the result of wages and salaries policy in the public sector. Also, significant results were achieved in structural reforms in the real and financial sectors.

1. Real sector. Economic activity continued its upward trend in the course of 2006. Compared to the same period of the previous year, 2005, GDP increased by 5.4 per cent in June-September 2006 while for the whole of 2006 it is estimated to have increased by 5.8 per cent.
   According to the new methodology of analysis of competitiveness as applied by the World Economic Forum, the level of the Serbian economy’s competitiveness is still very high. Judging from the global competitiveness idices, Serbia’s ranking dropped from 85 in 2005 to 87 in 2006. But from the point of view of the business competitiveness index, Serbia kept its low, 86th ranking in 2006, in comparison with 2005.
   In volume terms industrial output increased 4.7 per cent over 2005. Manufacturing as the most important sector for aggregate industrial production (with a 75.4 per cent share) contributed the most by its increase of 5.3 per cent. Growth was recorded also in the following sectors: quarry and mining (4.1 per cent); generation and distribution of electrical energy, water and gas (2.2 per cent). The trend of growth in transport, storage and communications over the last few years continued into 2006. The January-September 2006 period saw an increase in volume terms of 11.7 per cent in transport services; 7.9 per cent in postal services, and of 38.7 per cent in telecommunications, as against the same period last year.
   Retail sales in 2006 nominally increased 21 per cent while, in real terms, they increased by 7.7 per cent in comparison with 2005. This was due to the well-established procedures for tracing the flow of goods and to proper monitoring mechanisms being put in place.
2. The demand, wages and prices. Domestic demand continued to be the single most important booster of GDP growth. This is illustrated by the statistics relating to trade, wages and salaries, pensions and other social security benefits. The average net wages and salaries of SCD 21,707 in 2006 were 24.4 per cent higher in nominal terms and 11.4 per cent in real terms on those earned in 2006. In December there was an expected wage and salary rise, resulting from their increased levels before the end of the year. The employers paid additional bonuses, stimulation and holiday entitlements during that month. An average pension for January-November 2006 was 7.9 per cent higher in real terms than that in the last year.
   In 2006, there was a trend towards a decline in the number of employed and the rise of the numbers of those unemployed. The overall employed figures were down by 1.9 per cent on the previous year and, on an annual average, amounted to 1,011,139 persons. According to the National Employment Office, there were 1,011,139 jobseekers in the end-December 2006 period, which is 2.1 per cent up compared to December 2005 figures.
   The main features of the 2006 situation on the commodity and services markets were retail price rises below their projected levels, a fall in inflationary expectations and increased macroeconomic stability. Lower inflation was due to restrictive monetary policies, reduced referential rates of interest and tight fiscal policies. On average, retail prices went up by 12.7 per cent annually in 2006, whereas an aggregate retail price increment over the twelve-month period (December 2005/December 2006) was 6.6 per cent.
3. Monetary policy. It remained restrictive throughout 2006. Foreign exchange market was liberalised further by reducing direct intervention of the central bank (National Bank of Serbia) and by fluctuating the exchange rate of the dinar according to supply and demand for hard currencies on the market. The money supply is largely supported both by aggregate foreign currency reserves and by those held by the National Bank of Serbia.
4. Budget. Receipts in the 2006 budget totalled SCD 499.1 billion and increased by 5.8 per cent in real terms over 2005. Budgetary surplus was SCD 30.3 billion, which was 3.5 billion more than its 2005 surplus.
5. Foreign economic relations.
   
   • On aggregate, foreign trade amounted to US$ 19.6 billion or 31.2 per cent up on the previous year. Commodity exports increased by 43.4 per cent while imports grew 25.9 per cent.
   • Trade deficit was US$ 6.7 billion, an increase of 12.8 per cent in comparison with 2005.
   • The imports-export ratio was 48.8 per cent, which is 6 percentage points more than last year.
   Serbia’s principal trading partners as far as exports were concerned were the following countries: Italy, Bosnia-Herzegovina and Germany. As to its imports, the major trading partners included the Russian Federation, Germany and Italy.
   In the last two years, the investment setting has improved considerably, leading to a greater inflow of FDIs, namely
   
   • In 2005 FDIs were US$ 1.5 billion (between 2001 and 2005 they were US$ 4.5 billion in total).
   • In the January-November 2006 period FDIs were US$ 3.4 billion.
   According to sectors of economic activity, postal and telecom services accounted for the largest share of FDIs with 42.1 per cent, followed by manufacturing industry with 23.6 per cent and financial consultancy services with 20.5 per cent.
6. External debt. It stood at US$ 19.66 billion in 2006. By contrast, it totalled US$ 15.46 billion in 2005, meaning that the debt rose by 26.3 per cent.
7. Hard currency reserves. Compared to 2005 when they amounted to US$ 6.54 billion, in 2006 they were US$ 12.63 billion.
8. Privatisation. 2006 saw tender and auction privatisations of 233 companies netting EUR 262.2 million and EUR 248.6 million in investments. Tender was used to privatise 81 per cent of companies for sale, while 71 per cent of them became private by auction. Most of these companies (103) belonged to manufacturing and their sales resulted in 41.8 per cent of the earnings made.
   The Shares Fund effected 679 transactions in 2006, selling share packages for 350 companies and earning EUR 70.2 million. (By public takeover bids, 22 companies were paid EUR 7.8 million whereas foreigners acquired shares of 21 companies.) Shares of 306 companies were floated and traded for the first time on the stock market.
9. Restructuring. Between 2001 and 2006, some 100 larger enterprises underwent restructuring. According to the Privatisation Agency, by the end of 2006, 82 big enterprises going through various stages of the privatisation process came under the Restructuring Centre. With the restructuring of public companies the so-called pre-privatisation stage (namely, separating regulatory from commercial activities; taking out subsidiary activities; redundancies handling) came to an end.
10. Development Fund incentives. During the course of 2006, the Development Fund extended a total of SCD 10.3 billion in loans to 130 municipalities, intended for 1,375 long-term investment projects. Once these projects are implemented, it is estimated that 12,783 new jobs will be created. In value terms, the majority of loans will go to the projects encouraging the development of agriculture (358) or 35.6 per cent, followed by metals industry with 17.8 per cent and by the wood industry with 8.3 per cent allocated for 153 projects.
11. Conjunctural perspectives. The result of ordinary monthly surveys carried out by the Republic Development Institute regarding the business environment showed that 59 per cent of interviewed businessmen in the manufacturing sector saw their present business situation as satisfactory, 21 per cent as fairly good while 20 per cent said it was unfavourable. Of those interviewed, 34 economic operators recorded increased output and 12 per cent of them a decrease. Most operators (93 per cent of them) ran into various obstacles in doing business. The largest number of manufacturers of industrial goods (50 per cent) experienced problems on the supply side, such as: lack of finances as a limiting factor (57 per cent); lack of proper equipment (23 per cent); and low prices (20 per cent). The basic indicator used by the Republic Development Institute, the business climate index, is 24. This indicates that there was a further recovery of industrial production within the growth stage. In contrast, the average business climate index in 2005 was 20, and in 2006 it was 23.