Italy Crisis Will Hit Serbian Exports, Economist

Goran Nikolic, economist from the New Policy Centre, said the worsening crisis in the eurozone was bound to negatively affect Serbia's foreign trade and currency.

"The EU takes more than half of Serbia's exports, so any difficulties in the EU will result in a fall in demand [for Serbian goods]," Nikolic told Balkan Insight.

Nikolic said Serbia would be most directly affected by the deepening crisis in Italy, because Italian companies are among the biggest investors in Serbia and Italy is one of the most important EU markets for Serbian products.

The Italian automobile company Fiat and the clothing manufacturer Benetton are two of Italy's biggest investors in the Western Balkan country.  

Italy was Serbia's top export partner in the first 11 months of 2011. Serbia exported goods worth $1.01 billion (about 740 million euro) to the country over this period.

On Sunday, Italian Prime Minister Silvio Berlusconi resigned after parliament in Rome passed a package of cost-cutting reforms, paving the way for a new technocratic government under former European Commissioner Mario Monti.

Nikolic said falling demand in Italy had already hit Serbian exports and one consequence of this would be a decrease in the standard of living.

The crisis is also expected to hit Serbian banking system as world markets become wary about lending, making borrowing by Serbian banks more difficult and more expensive.

"Serbia can also expect less interest among investors, which will jeopardize the stability of dinar," Nikolic noted.

Recalling the existing impact of the crisis on the exchange rate, he said the national currency had been devalued already by almost 25 per cent in the last three years.

"It is difficult to predict what will happen to the dinar in the second half of next year but given the uncertainty of significant foreign inflows in 2012, the weakening of the dinar against the euro seems to be a real solution," he concluded.