Efects of the Global Economic Crisis on the Serbian Economy and the Neighbouring Countries

Petrović Pero (PhD, Professorial Fellow, Institute of International Politics and Economics, Belgrade), pera@diplomacy.bg.ac.rs

The global downturn is amplifying its negative effects on the local economic crisis. The real sector is much more exposed to the crisis and its negative impact than the financial sector, which is dominated by foreign ownership. Under the conditions of foreign capital squeeze and foreign debt repayment, the pressure is increased on the depreciation of the local currency, what is followed by the uncertain value of the nominal fix rate. Due to these underlying principles, the policy response should be to shift the focus from the financial sector to the real sector. The paper explains that due to the world financial crisis the sudden stop of foreign capital inflow has caused a sharp monetary contraction and consequently a drop in output in Serbia. The main problem of Serbia is the discrepancies between the real sector and the financial sector. The macroeconomic balance is directly related to the rate of implementing the industrial structural reforms and the level of the economic competitiveness. The increasing illiquidity, which is the major cause of decreasing demand and consequently manufacturing, is possible to overcome by offering additional resources to the industry and the population.

Keywords: Global downturn, fiscal and monetary policy, bank rehabilitation, structural changes, competitiveness, Serbian economy