BELGRADE, May 6 (Reuters) - Business conditions in Serbia have worsened since the start of the year and only five percent of firms expect an improvement after next weekend's election, according to a survey published on Tuesday.

Latest polls ahead of the May 11 election show the nationalist Radical Party slightly ahead of a pro-Western coalition, with both blocs well short of the majority needed to form a government alone.

"The overall business climate has deteriorated due to growing political risk and weaker macroeconomic fundamentals," said Milan Kovac of the Economics Institute, which carried out the survey of 300 firms.

The survey found that while only five percent of firms expected things to improve after the election, 35 percent thought they would get worse. Only 20 percent expected foreign investment in the next three months.

Chief economist Stojan Stamenkovic said that in the first two months of 2008, only the financial sector and foreign investments slowed down.
"Now, we see the same across the entire economy," he said. "Everyone is waiting for the election outcome."

"Growing uncertainty is the problem. No one can tell if all parties honestly plan to pursue the policies they offer to voters. If they do, one thing is certain -- taxes will go down and spending will go up, fuelling inflation."

Serbia's recent economic data has made grim reading. Core inflation hit 8 percent in April, overshooting the central bank's 3-6 percent target band for the year, with headline inflation rising to 12 percent according to local standards, double what the government pledged for 2008.
The trade gap hit $1.7 billion in February and the current account deficit was $988 million.

Economists said there were two scenarios for the economy.

Optimistically -- assuming the economy stays as open as it is -- gross domestic product would grow by a cumulative 71 percent by 2015, driven by annual investment of 5 billion euros and creating 300,000 jobs. Annual growth would be 7.3 percent after 2010.

The pessimistic scenario, with foreign investments at no more than 2 billion euros a year, saw a sharp slowdown, with the economy growing by only 2.0 percent a year by 2015.

"Under the optimistic scenario, average wages could grow to 620 euros in 2015 and under the pessimistic scenario to 460 euros," Stamenkovic said, comparing it to the current 350 euros.

But even the 460 euros salary forecast as a worst-case scenario would be too high for the Russian, Chinese and Indian investors that the nationalists want to attract, he said, so it made more sense for Serbia to try and draw Western investors.

Serbia has attracted more than $13 billion in foreign direct investment since 2000, overwhelmingly from western countries. (Editing by Ellie Tzortzi, David Christian-Edwards)