Serbian economy doing ‘well’

BELGRADE – Serbia’s economy has done well in 2007 despite double-digit inflation, widening payments gaps and rising unemployment, the Finance Ministry said yesterday. Inflation was not a concern as long as growth remained strong, it noted. The economy is expected to show 7.5 percent growth for 2007 with GDP rising to 31 billion euros ($45.60 billion) and per capita income at around $6,000, said Janko Guzijan, Finance Ministry state secretary. «We expect growth in 2008 to remain strong at 6-6.5 percent, still above the regional average, and if the dollar exchange rate remains unchanged, Serbia’s GDP could reach $50 billion next year,» he told a news conference. Finance Minister Mirko Cvetkovic said a year of fiscal expansion and soaring public sector wages had left its mark, as inflation rose and the current account deficit widened to 15 percent of GDP. «On the negative side, employment has fallen and inflation will be 10 percent or 3.5 percentage points above the level we planned,» he said, blaming crude oil and food prices. The statistics office said on Thursday that end-2007 inflation had hit 10.1 percent, while core inflation – gauging prices not under government control – hit 5.4 percent. «We will take this year’s inflation very seriously, but we also hope that in 2008 we will not be affected by external price shocks,» Cvetkovic said. «Even if it turns out to be several percentage points higher or lower than planned, macroeconomic stability will not be endangered, and we can still have a strong GDP growth.» Soaring prices prompted Serbia’s central bank on Thursday into policy tightening, with the bank raising its two-week repo rate by 50 basis points to 10 percent, to make sure it meets the 3-6 percent core inflation target set for 2008. The bank also said more tightening was likely as inflation was expected to be strong in the first half of 2008, with core inflation above 6.0 percent and a double-digit headline figure. While both the bank and the government drew on the same figures, Cvetkovic said he took a more «optimistic» approach. Analysts at FREN/CEVES think tank say that carry-over inflation – the starting point for 2008 – will be 5.2 percent, taking into account end-December figure and the 2007 average. «This may not be that high, but we are concerned with the trend. Annualized figures for the last quarter already show a 12.6 percent inflation,» Dusko Vasiljevic of FREN/CEVES said. But Cvetkovic said carry-over numbers were irrelevant. «There is no such thing as carry-over inflation. We are starting from scratch and will be looking at monthly figures because only those are relevant,» he said. The government will try to stick to its budget plans, with inflation forecast at 6.0 percent, he said. The 2007 budget sees a gap of 0.5 percent of GDP, the same size the government delivered this year if calculated by the International Monetary Fund standards.