BMI View: Compared with the other countries in Central and Eastern Europe, Serbia has a relatively pooreconomic growth outlook. A large budget deficit and increasing public debt made the government respondwith austerity measures, which will inevitably delay a faster expansion of the Serbian economy. Despitethat, retailers continue to invest and expect to capitalise on the country's potential in the medium term.
Poor public finances paired with underdeveloped financial and legal systems are taking a toll on the Serbianeconomy. Real GDP contracted by 2.0% in 2014 as a result of high unemployment and weak economicactivity of the country's main trade partners. The decline is set to prolong into this year with a projectedcontraction of 0.7%. Unlike in the recent decade when the economy was falling and rebounding because ofpopulist decisions and fast accumulation of public debt, this year the slowdown will be a direct outcome ofstructural reforms. In February 2015, Serbia reached a stand-by agreement with the International MonetaryFund (IMF), which will allow the country the access to EUR1.2bn of emergency funds over a three-yearperiod. In return, the Serbian government agreed to balance public finances, increase the stability of thecountry's financial system and implement structural reforms necessary for reducing unemployment andpromoting employment growth. As a result, a more sustained economic expansion can be anticipated in themedium term, with a 3.3% rate of real GDP growth projected for 2017.
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