Chinese steel mill investment to lift Serbian growth rate, EBRD says

Chinese steel mill investment to lift Serbian growth rate, EBRD says
By bne IntelliNews May 12, 2016

The privatisation of Serbia's only steel mill Zelezara Smedervo to China’s Hebei Iron and Steel Group (HBIS) is expected to contribute to GDP growth given the substantial investments planned by the Chinese investor, the European Bank for Reconstruction and Development (EBRD) said on May 11.

According to the EBRD's Regional Economic Prospects report published on May 11, Serbia’s GDP will rise by 1.8% in 2016 and 2.3% in 2016. The EBRD has not changed its expectations for Serbia since its last forecast from November 2015.

“Upside risk for the projection (potentially adding 1.0-1.5pp to growth in 2017) comes from potential upscaling of production in the recently privatised large steel mill, with the new Chinese owner announcing ambitious investment and production plans,” the EBRD said in its latest report.

According to the most recent media reporting, HBIS would invest $600mn in Zelezara as it is an amount the Chinese Bank approved for the purpose of further investments and current assets, daily Politika reported on May 7.

As local media reported, Serbian prime minister Aleksandar Vucic said on April 6 that successful operations of Zelezara will have a huge influence on Serbia’s GDP growth, which could be as high as 3.5% or 4% in 2017. This would make Serbia closer to EU GDP levels.

According to the EBRD, private investment will continue to be the main growth driver, supported by a gradual recovery of consumption.

The EBRD added that medium-term prospects are favourable, but will depend on the pace of reforms needed to further improve the investment climate, support NPL resolution and corporate restructuring with a view to unlocking credit growth, and speed up the implementation of major infrastructure projects.

Restructuring of public companies is part of the €1.2bn three-year stand-by arrangement (SBA) with the IMF approved in February 2015. Progress has been criticised by the IMF, as it has moved slowly mainly because the country was preparing for snap parliamentary elections on April 24. Now after ruling Serbian Progressive Party led by Vucic managed to obtain new four-year mandate it is expected that the reform process will accelerate even though it means some 30,000 lay-offs within public firms.

The EBRD said that Serbia managed to reach 0.7% GDP growth in 2015 despite a programme of fiscal adjustment on the back of a low base after the floods in 2014, increasing private investment and pick-up in exports.

The EBRD projected in its November Regional Economic Prospects report that Serbia’s GDP would rise by 0.5% in 2015.

The IMF confirmed in its spring Regional Economic Issues report on Central, Eastern and Southeastern Europe published on May 6 that Serbia’s economy will grow by a real 1.8% in 2016 and 2.3% in 2017 while according to the European Commission's Spring Economic Forecast published on May 3, Serbia’s GDP will grow by 2% in 2016 and 2.5% in 2017.

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