Soskic: The growth of energy and food prices will not be short.term
Professor of the Faculty of Economics in Belgrade, Dejan Soskic, estimated that the growth of energy prices will not be short-term and the secondary effects of that will spill over to the rest of the economy through reduced economic activity and pressure on prices from cost growth.In an interview with the Nezavisnost.org portal, he said that it was difficult to assess the wider consequences of the war in Ukraine, but that the development of events in the Ukrainian crisis could significantly change circumstances, including economic consequences for Europe and thus Serbia.

What is already clear is that our trade ties with Ukraine and Russia will be, and already are, very difficult or impossible. Securing alternative energy supply lines is a priority at the moment, but it is also first on the agenda in Germany and other much larger European economies than ours, and the question is how feasible it is in the short term and at what prices “, pointed out Šoškić.

His assessment is that Europe will enter a recession, which will have a twofold effect on Serbia.

“First, through the trade channel, there will be fewer opportunities to sell our goods on the EU market in the face of declining economic activity in the EU, and it is possible that something we have imported from the EU so far, including raw materials, will be less available and more expensive.” Secondly, through the investment channel, the recession in the EU, and especially the strong negative effects expected on Germany, Austria and Italy, will make these countries as significant carriers of foreign direct investment in our country, reduce their investment to Serbia, “Soskic said.

According to Šoškić, direct foreign investments have been given too much importance in Serbia so far, while the issue of regulating the institutional environment and educating the population as the main driver of domestic private investments has been neglected.

“In addition, the growth of inflation in the world and the expected growth of interest rates will make it harder for our country to borrow on the international market and thus reduce the space for capital investments from the budget, which will further reduce economic activity in the country. visible channels of influence on the domestic economy, but additional secondary or tertiary effects should not be ruled out, “Soskic warned.

He added that such economic consequences of the conflict in Ukraine will certainly result in lower standards of citizens, and there is not much room for timely defense against price shocks from abroad.

With the short-term growth of the dinar value, it is possible to mitigate some price shocks coming from abroad in the short term. positive effects, nor was there any need for that. Only our exporters were additionally affected, even foreign companies …, and imports have increased in areas where our economy traditionally has something to offer, “said Soskic, former governor of the NBS.

He believes that the nominal strengthening of the domestic currency in the conditions of the country’s chronic trade and balance of payments deficit is “the wrong answer at the first colloquium in macroeconomics at any good faculty of economics.”

Regarding the concerns of citizens about the rise in food prices, Soskic said that order should be introduced in subsidizing domestic agricultural producers, but also domestic consumers, and much less, the domestic processing industry.

“Subsidies given to agriculture must not end with traders or foreign buyers. In that sense, I believe that all agricultural products in the production of which money is in some way invested from the budget, should pay an adequate ‘export duty’ in the event of export. “previously given subsidies could be returned to our country’s budget,” he said.

According to him, such a mechanism would be fair to taxpayers, but it would also lead to the fact that the growth of prices of agricultural products on the international market is less reflected in the growth of food prices on the domestic market.

“And food, as we know, is a great possible generator of inflation in our country, because with over 30 percent, it participates in the consumer price index which measures inflation,” said Soskic.

He pointed out that the rise in food prices could be a consequence of the poor agricultural season in the country, but also due to rising prices on the international market.

“When the agricultural season is bad in the country, the problem can be mitigated to some extent by a well-established and efficient system of commodity reserves, but also by intervention imports from abroad if international prices are lower. However, if prices have risen excessive exports, because exports in such circumstances reduce the supply on the domestic market and de facto, spills high food prices from abroad to our country, “said Soskic.

According to Šoškić, this effect is not achieved by administrative bans on exports, but by the logical and justified introduction of ‘export duties’.

He added that “in the coming period, primarily due to climate change, we should not expect stabilization of prices in that market.”

According to Šoškić, incentives of domestic agricultural producers on the domestic market are especially important.

“I believe that in a combination of minimum purchase prices, subsidies, export duties, efficient functioning of commodity reserves, insurance of physical yields and insurance of financial yields in agriculture, intervention imports and subsidized loans to improve the stability and level of agricultural production, it is possible to create a model “I think that we are still far from such a model and that is why food prices show unnecessarily high instability and often negatively affect the standard of the general public,” Soskic said.

Soskic considers the ban on exports and the freezing of prices of certain foodstuffs to be wrong decisions of “economic policy makers who do not understand the functioning of the market”, or hasty reaction motivated by political marketing “with the aim of maintaining a false positive image in the pre-election period”.

By Editor

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