An article by: Dušan Proroković

Global financial crisis 2007-2008 left great economic consequences on the Balkan states. In political practice, this contributed to the rise of stabilocracies instead of democracies, which were functioning with many problems anyway. The harsh austerity measures that had to be implemented at the beginning of the second decade of the 21st century, the arrangement of the public finance system and the feverish race for investors affected the internal transformation of political systems. Political systems are shaped by gatherings around strong leaders, willing to take risks and able to withstand shocks and criticism from taking unpopular measures. Of course, that process was also supported externally, by the USA and the EU. Pragmatic Americans wanted to have loyal regimes in the context of their foreign and security policy, domestic developments were of little interest to them. It was important for them to expand NATO, not to question the new geopolitical acquisition in Ukraine (which were fully activated in 2014) and to maintain the "vassal contingents" that the Balkan states were sending to American missions (Iraq, Afghanistan, etc.). It was important for the EU to prevent unwanted bankruptcies, so that the situation with Greece does not repeat itself (bankruptcy after which Syriza came to power, with all the problems it caused for Brussels, including the drastic growth of anti-German sentiment), so topics such as independent media, free elections and the functioning of institutions were pushed to the background.

Aleksandar Vučić

Stabilocrats, from Borisov in Bulgaria, through Grueski in (Northern) Macedonia, to Rama in Albania and Đukanović in Montenegro, consolidated their power. Among them was also Aleksandar Vučić in Serbia. Later, as the relationship of certain stabilocrats with the USA and the EU deteriorated, or as some internal crises affected their power (after all, three of the five listed are no longer in power), so were published (commissioned or contextualized) analyzes about the reasons for the emergence of such political systems. Mostly, in order to reduce the responsibility of the USA and the EU, that process was interpreted through the prism of abuses and manipulations by certain politicians who secured and extended their power by controlling the media, manipulating elections and abusing the institutional apparatus. There is some truth in this view, but it is necessary to underline that the causes of the emergence of the Balkan stabilocracies are nevertheless different. And it is necessary to underline how they lasted also because of external support. Simply, it was in the interest of the USA and the EU.

Despite this similarity, in terms of dealing with the consequences of the global financial crisis, each of the Balkan states had its own approach. Some managed to deal with those adversities better and easier, others worse and slower. This happened for several reasons. First, in the structural sense there are certain differences, so what is a comparative advantage for one economy, is a disadvantage for another (for example, the growth of the Montenegrin economy is based on tourism, which is not the case with the Serbian economy). Secondly, the political status is different, among the Balkan states there are both EU and NATO members, and those that are in NATO but not in the EU, but also countries that are neither in the EU nor in NATO. Foreign and security policy depends on that political status, and foreign trade policy and economic policy in a broader sense are an integral part of them. Third, after the global financial crisis, we witnessed several more major crises of a continental scale: the migrant crisis, the escalation of the Ukrainian crisis after the Euromaidan and the rapid deterioration of EU-Russia relations, the pandemic, events from February 2022… Coupled with the consequences of the global financial crisis, all the listed crises left different cumulative effects in individual countries.

Serbian President Aleksandar Vučić is a key political figure in the Western Balkans

How did all this affect Serbia’s economy? Undeniably, as a Serbian stabilocrat, the current president, Aleksandar Vučić, is a key political figure in the country. With great reliability, and bearing in mind the relative size and importance of Serbia in relation to the surroundings, it can be concluded that Vučić is a key political figure in the Western Balkans. Two years later, he transformed the unstable coalition ruling majority, established after the 2012 elections, into a stable and clearly hierarchical structure that has had no real rival on the political scene for the last ten years (despite numerous attempts to unify the various halves of the opposition). At that moment, the priority for the USA was for Vučić to show cooperation regarding the “Kosovo case” and make certain concessions to the Albanians, and for the EU to prevent the threatening escalation of tension in the country caused by the poor economic situation (high level of unemployment, lack of investment, high public spending, oversized bureaucratic apparatus, etc.).

The sympathies of Serbian public opinion are on the side of Russia and China

Formally, Serbia remained an interlocutor of the USA for an important geopolitical topic concerning the security architecture of the region, and at the same time it remained a candidate for EU membership and European integration continued. However, informal processes took place in a different way. Faced with Western support for the unilateral declaration of independence of the Kosovo Albanians, Serbian public opinion began to “sink” towards an extreme anti-Western mood since 2008. Speaking in the pre-election campaign in Serbia about European integration and benefits of EU membership has long been absurd, that’s not how you win elections. On the contrary. By inertia, as overall international relations changed, public sympathies “went” towards Russia and China, whose role in world politics grew. This attitude of the public was also influenced by the actions of a whole series of “intellectual circles”, small anti-Western opposition parties (which constantly and continuously put pressure on Vučić, regardless of the fact that they had a modest number of deputies in the parliament) and individuals (that phenomenon of a distinguished individual who with its activities can influence the mood of the public is still widespread both in Serbia and in the Balkans, although it is often highly debatable on what basis this reputation is acquired and how it is measured!?). It turned out that this informal dimension had a huge impact on the Serbian economy. Both in (geo)political extortion (when he realized that for the Americans “cooperation” regarding the Kosovo case ends with formal recognition), and under public pressure, Vučić intensified communication with Russia and China. This first reflected on ensuring the energy security of Serbia and the completion of the Turkish Stream gas pipeline (a project that was actually suspended after Borisov came to power in Bulgaria), as well as further investments by Gazprom in the oil processing sector in Serbia (refineries in Novi Sad and Pancevo) but also the first announcements about some future talks with Rosatom (about the construction of a nuclear power plant). This second brought much-needed investments to Serbia at a very critical moment. Today, the topic of Chinese investments in Serbia is very tangible within the USA and the EU, there is a lot of talk about it, and even the danger of Serbia becoming a “Chinese colony” is mentioned. These are ordinary nonsense and pure propaganda tools. The Chinese are neither the largest investors in Serbia (the Germans are), nor are they the largest foreign trade partner (again the Germans), nor are they the largest creditor (Western financial institutions). The secret of the effect of Chinese investments is that they came at the right moment and reversed the course of economic dynamics. Instead of recession or stagnation, it has moved into a phase of growth.

The global financial crisis and the Serbian economy

For example: the direct consequence of the global financial crisis concerned the departure of two of the largest exporters from Serbia at that time – the company US Steel, which withdrew from the Smederevo Iron and Steel Plant (2012), and the company “FIAT Chrysler Automobiles”, which reduced production and then closed its factory in Kragujevac (production has not been restored to this day, although it is announced before every election). Chinese Hesteel took over Železara Smederevo (2016), followed by Zijin (2018), who took over the previously unprofitable mining and smelting basin Bor (with copper and gold deposits in Bor and Majdanpek) and these two companies became the largest individual exporters in Serbia in the short term. Neither the pandemic nor the disruption of US-China relations (which resulted in a certain disruption of EU-China relations) prevented the expansion of their business. What is even more important, after these two large corporations, other Chinese concerns started arriving with their greenfield investments (MeiTa near Belgrade, Minth Automotive in Loznica, LingLong in Zrenjanin). In addition, together with Hungary, Serbia applied within the framework of the Chinese Belt and Road mega-initiative for the construction project of the Belgrade-Budapest high-speed railway and received a construction loan (the first phase of construction has already been completed), and Chinese creditors are also appearing as financiers of other infrastructure projects. (highways and communal infrastructure). While the USA built its position on the creation of narratives and harsh control of formal political structures and the EU engaged in lending to “gender equality” projects and strengthening the capacity of the non-governmental sector, obviously intending to strengthen its influence in Serbian society through the clientelistic elite, Russia invested in energy, and China was building infrastructure and gaining the sympathy of the wider public. The EU will realize this only later, so in addition to lending for the construction of the gas connector between Serbia and Bulgaria (which is an alternative way of supplying the Turkish Stream), from 2022 it will also promise to finance the construction of the Niš-Priština highway and the Belgrade-Niš high-speed railway. The USA will not change its official approach (although there was an attempt in 2021, but everything ended in promises), which is why, despite the great influence on formal political structures, the American influence on the Serbian public and informal structures will become disproportionately small.

New economic dynamics of Serbia’s development

For the most part, Vučić’s stabilocracy did bring a new economic dynamic. The economic and social environment has changed, and due to a number of reasons (cheap energy sources and guaranteed energy security, access to the markets of the EU, EurAsEC, Turkey and China thanks to agreements on free or preferential trade, good geographical location, accelerated development of road infrastructure that facilitates transport, cheaper labor force compared to the Western European market) the inflow of capital from the West has also increased rapidly since 2017. In the last decade, nominal GDP grew from below 45 to almost 70 billion euros. Looking at the GDP per capita, it will soon be doubled (nominal GDP is increasing, and due to depopulation, the number of inhabitants is decreasing). Although in the analyzes of certain economists, it is often overemphasized that the growth rates could have been higher, as well as that there are structural problems in the Serbian economy, the stated facts cannot be disputed. The situation is significantly different than just 10 years ago.

Prospects of economic development of Serbia

However, when we talk about perspectives, numerous challenges remain.
First, parallel to GDP growth, public debt also grew. Statistically speaking, this debt is continuously within 50-55% of GDP. But as the GDP grows, so does the public debt. Currently, it amounts to over 35 billion euros (10 years ago it was around 16 billion), and new (megalomaniac) borrowings for the realization of the Expo 2027 project (Belgrade will host this prestigious world exhibition) have been announced in the amount of as much as 15 billion. On the one hand, this financial injection can further intensify economic dynamics. The share of public spending will jump sharply, new infrastructure will be built and new investments will arrive in Serbia with it. On the other hand, such projects are a “double-edged sword”. Focusing on the Expo as a flywheel for intensifying economic dynamics helped Dubai to develop infrastructure and attract investors (organized in 2020), but the results achieved in Astana (2017) are highly debatable. For many reasons, it is difficult to compare Belgrade with Dubai and Astana, but these two examples should be kept in mind as well as the infrastructure construction project for the Olympic Games in Athens (2004), which is also debatable to say the least (there are comments indicating that Greece’s borrowing was actually the trigger for the later “bankruptcy”). To the public debt (existing and announced) should be added the debt of citizens in the amount of about 15 billion euros and the debt of the business sector, which is estimated at about 15.5 billion. The total indebtedness of the state, citizens and companies therefore exceeds the GDP, which is “pushed forward” by new borrowings.

Second, Serbia has a relatively high foreign trade deficit. In recent years, it has hovered around 9 billion euros with a continuous upward trend (in 2023, it even rose to 12 billion). Part of this deficit is covered by payments from abroad, since 4-6 billion euros annually enters the domestic economy from these payments (workers from Serbia working in Western Europe send money to their relatives, buy real estate in Serbia, etc.). Nevertheless, the share of about 13% of the foreign trade deficit in GDP is not only not negligible, but in a certain development of the situation it can also represent a first-class danger.

Third, the total foreign trade exchange of Serbia exceeds the nominal GDP (roughly, according to the data for 2023, exports amounted to 29 billion, and imports 41 billion, while GDP was 69 billion). This indicates an unfavorable structure of the Serbian industry. For example, insulation wire is at the top of the list of imported items (700 million euros), and at the same time this item also appears at the top of the list of exported products (1.5 billion euros). Semi-finished products are imported by German companies that manufacture automotive components in Serbia, then they are processed and exported as a finished product. In a production chain which is organized like this, a relatively small share of added value remains in Serbia, while the investor’s profit is maximized. Any turbulence in the global market or political instability in the Balkans can affect the interruption or change in the organization of the production chain and thus slow down the economic dynamics. It is relatively easy for investors to transfer the production of one component (in the specific case of insulating wire) to another country if circumstances change.

Fourthly, meaningless and completely non-transparent subsidies were given to foreign investors in order to attract them to Serbia. That policy did bring results, but over time it became a frequent point of disagreement in polemics. First of all, because in this way foreign investors were often given preference over domestic ones. And then also due to the fact that everything and anything began to be subsidized, without any selection and clear criteria. Thus, for example, the German Rauch received a subsidy of 74,000 euros per workplace for the opening of a small factory with 30 employees for fruit processing and juice production. Serbia is a country with strong agriculture, fruit processing is a developed branch and it is unclear why such a move? The record holder is the German company Henkel with a subsidy of 144,362 euros per workplace. Again, it is about the production of shampoos, detergents and similar products, so it is not clear why this producer is subsidized so much? Subsidizing the arrival of investors who will bring high technologies and high added value is fine, but the approach currently being implemented is under attack.

Fifth, in conditions of high indebtedness of citizens and companies to foreign banks (almost entirely to Western banks), a fixed exchange rate monetary policy is implemented in practice. Officially, there is no such decision of the National Bank of Serbia, but unofficially, the situation is identical to that in Bosnia and Herzegovina, Bulgaria or North Macedonia. The key for creditors is that the exchange rate of the dinar is maintained, that there are no large fluctuations, and that citizens and companies regularly repay their loans (if the exchange rate fluctuates, then the value of earnings expressed in euros may decrease, so the problem of over-indebtedness and the inability to repay loans arises). As a result, the Serbian dinar is overvalued, which causes an increase in costs in the country (prices expressed in euros remain high), but also a decrease in the competitiveness of the Serbian economy abroad (Serbian goods remain relatively expensive on foreign markets).

Finally, and sixthly, it concerns connections with Western markets and institutions… Serbia is organically and systemically linked to the EU. Over two-thirds of foreign trade is oriented towards the EU, and the euro is the country’s unofficial reserve currency. To some extent, this is also an advantage of the Serbian economy, as it facilitates exports, access to loans and access to developed continental distribution chains. But, at some point, this can be a great danger, since every crisis in the European economy automatically means a crisis in the Serbian economy. The current inflation in the Eurozone has a dramatic effect on the living standards of Serbian citizens, and despite the increase in GDP (nominal or per capita) and wage growth, it remains the same or even worsens for certain categories of the population (people with the lowest incomes feel the consequences the most, because inflation is growing at a higher rate than the growth of their wages). According to the data of the Republic Institute of Statistics, the so-called “consumer basket” has become more expensive by 30% in the previous year, and if only certain basic products such as food are taken into account, it is much more (even over 50%).
Something like this has not been seen since the end of the 1980s, when political fluctuations in the crumbling communist Yugoslavia induced unfavorable economic trends (it is true, during the duration of international sanctions in the 1990s, record hyperinflation was also recorded in Serbia, but those circumstances are still incomparable to the current any comparison with that example is unusable for drawing conclusions). If these statistical data were crossed, if Serbia were a member of the Eurozone, it would be the record holder in terms of inflation. The other Balkan countries are not far behind Serbia.


Generally, looking at macroeconomic indicators, the picture of the Serbian economy is not and cannot be “black and white”. Undoubtedly, there is an economic dynamic that determines continuous growth. However, further growth is conditioned by a whole series of factors, among which are not only economic but also (geo)political ones. The Serbian economy is by far the largest in the Western Balkans, but it is relatively small in continental terms. And it is precisely these “continental movements” that will largely determine further trends both in Serbia and in the Western Balkans. After all, this also happened after the global economic crisis of 2007-2008.

Professor, PhD

Dušan Proroković