Risks of delayed reindustrialization

Abstract

2012 was a tough year for Serbia because transition was not completed yet and the economy went sharply into reverse. Last year the accessi­on process to the EU slowed down and economic growth shrank by 2%, which is much more than expected. Deterioration of macroeconomic fundamentals during the crisis 2008-is evident. The labor market has been hit hard by the recession. The unemployment rate, which stood at 14.4% before the crisis, is gravitating around 25% during the crisis. Projections are even more discouraging, as it is expected to stabilize at 28% in the following three years. Persistently high unemployment has dampened consumption (investment and final). Now Serbia's economy is faced with the second dip of double-dip recession. Transmission mechanisms of deeply embedded structural imbalances are accelerated by global stress factors. Public sector and great majority of private sector are loss makers. Banking industry is profitable but in downturn negative prospects are affecting its deteriorating performances. Households suffer from low income and high unemployment. This paper investigates the influence of the structural imbalances on the investor's risk appetite and potentials for recovery. The analysis includes an in-depth look at Serbia's economy through several different lenses. We take a view that is both broad and deep, striving to drill down into several key issues, but mainly from business perspective. Proposed anti-crisis program has two purposes, financial consolidation and reindustrialization through expansion of commodities production (energy and food primarily) in the first stage as well as manufacturing in the second stage. The role of the state and the importance of the public sector are also taken into equation via industrial policy in energy sector. Our work is structured into four parts. The first part addresses the strategic audit of Serbia's economy. We present key macroeconomic and vulnerability indicators and adverse trends in the main sectors. The second part examines global economic prospects with a special emphasis on alternative economic models. The third part considers reindustrialization as a way of rethinking the current economic model. Finally, we put energy sector as priority one for economic recovery in the risk analysis framework in the fourth part.