ECONOMY

Serb GDP up 7.5 pct in 2007 despite politics

BELGRADE (Reuters) – Serbia’s gross domestic product (GDP) shrugged off political turbulence in 2007 to grow by a larger-than-expected 7.5 percent on strong domestic demand as well as growth in telecoms, real estate and trade. The figure, the highest in the Balkans, beats the 7 percent forecast by the IMF and the 6 percent forecast by the European Bank for Reconstruction and Development for the year. It was a marked improvement to the 5.7 percent posted for 2006. «This is the second biggest figure since 2000,» said Ivan Nikolic of the Economics Institute think tank, adding the growth was generated by increased demand coming from wage hikes of over 18 percent last year. «It was an election year and that’s why the government was more generous and increased wages in the public sector,» Nikolic said. «It will be difficult to sustain such a high growth rate with the existing political risk.» Serbia spent the first five months of 2007 in limbo due to lengthy coalition talks following an inconclusive election. The rest of the year was dominated by negotiations on the fate of breakaway Kosovo province. Nationalist Prime Minister Vojislav Kostunica hardened his stance, pitting Serbia against the West and causing investor confidence to waver. Serbia’s economic growth since the fall of nationalist autocrat Slobodan Milosevic in 2000 has been healthy, peaking at an annual 8.4 percent in 2004, but it remains hostage to turbulent domestic politics. The government collapsed earlier this month in the wake of Kosovo’s secession. The May election is shaping up as a vote on whether the nation should swallow its pride and pursue European Union membership despite the EU’s backing for Kosovo. Pro-Western politicians warn that abandoning the EU path would return the country to the poverty of the Milosevic decade, when Serbs experienced poverty, isolation and hyperinflation. Jurij Bajec, professor of economics at Belgrade University, said the GDP figures were the only bright spot in a landscape blighted by runaway inflation and a growing foreign trade deficit. «Average annual growth of 7 percent a year would enable Serbia to reduce the gap with other countries in the region that was created after 1989,» he said. «In order to secure high growth this year, Serbia needs a stable pro-Western government that would secure investment and loans on favorable terms.» Foreign investors, the people Serbia is keen to woo to fuel similarly high growth rates in the future, agree. «Serbia is the country with the greatest potential in the region, it is the biggest market, with good infrastructure and well-trained people, but that potential is not being used,» said George Bobvos, a senior executive in Trigranit real estate development firm. «Long-term planning is crucial for investors and that requires a stable political situation. Big companies are watching Serbia, and depending on developments they will decide whether to go in or turn to some other country.»