Erste Bank Research has raised its forecast for Serbia’s economic growth in 2026 to 3.4% from 2.9%, following stronger-than-expected first-half performance. Second-quarter GDP growth was revised to 3.8% from 3.6%, bringing average growth in the first half of the year to about 3.5%.
Erste kept its 4.0% growth forecast for 2027, when investment and economic activity linked to Expo 2027 are expected to provide further support. The revised 2026 projection is above the IMF’s 2.8% forecast and reflects Serbia’s stronger performance despite weak external demand and geopolitical and energy-market pressures.
Inflation Keeps Monetary Policy Restrictive
The stronger economic outlook does not imply an imminent reduction in borrowing costs. Erste expects the National Bank of Serbia (NBS) to maintain its 5.75% key policy rate throughout 2026 and 2027, with the first cut projected only in 2028.
The NBS left the rate unchanged this week, pointing to inflation risks and uncertainty in the international environment. Erste has lowered its forecast for average 2026 inflation to 3.1% from 3.9%, following a sharp decline in headline inflation during the summer as food and fuel prices eased. Underlying price pressures remain stronger. Core inflation is around 4.5%, close to the upper end of the NBS tolerance band, while services prices remain relatively elevated. Serbian real wages are also increasing by more than 7% year-on-year, placing wage growth among the fastest in Central and Eastern Europe.
Energy Prices Could Push Inflation Higher
The combination of resilient domestic demand, wage increases and persistent services inflation limits the scope for monetary easing despite lower headline inflation. Erste expects headline inflation to return toward 4.0%-4.5% during the winter as favourable base effects fade. Higher commodity prices remain an additional external risk. Renewed volatility in energy markets could therefore add pressure to domestic prices while keeping the NBS cautious about reducing interest rates.
Investment Growth Meets Higher Financing Costs
The economic expansion is increasingly supported by construction, infrastructure, real estate and domestic investment, with Expo-related projects expected to add further momentum through 2027. Investment was already an increasingly important contributor to Serbian growth during the first half of the year.
Companies entering the next investment cycle, however, could face a 5.75% benchmark interest rate for longer than previously anticipated. Higher financing costs affect machinery purchases, working capital, commercial property and corporate expansion, particularly for SMEs that rely heavily on bank lending. Large infrastructure and foreign investment projects can have access to state-backed financing, international financial institutions or external funding, while domestic private companies have fewer financing alternatives.
Banks Face Different Effects From Higher Rates
A prolonged period of elevated interest rates could support bank lending margins, particularly if economic growth keeps credit demand relatively resilient. At the same time, expensive borrowing could eventually constrain corporate investment and household credit growth. The combination could widen differences between large state- or foreign-backed projects and smaller domestic companies, with the latter facing higher financing costs during the investment cycle.
Expo 2027 Adds to Growth and Demand
The stronger 2026 forecast increases the importance of 2027, when Expo-related construction and public investment are expected to generate a significant demand impulse. Stronger European growth could also improve conditions for Serbia’s manufacturing exporters. At the same time, fiscal stimulus, wage growth and infrastructure spending could keep domestic inflation pressures stronger than headline consumer-price data currently indicate. Erste’s projections therefore combine continued economic expansion with prolonged restrictive monetary policy, leaving the Serbian economy on a path toward 4.0% growth in 2027 while the NBS is expected to keep its key rate at 5.75%.
