The International Monetary Fund (IMF) has upgraded its economic growth forecasts for Serbia to 3.3% in 2026 and 4% in 2027, improving the outlook for investment, manufacturing and domestic demand. However, rising inflation, higher energy costs and continued external financing requirements remain important considerations for businesses, lenders and infrastructure investors.
- Construction and Domestic Demand Support Growth
- Industrial Output Remains Uneven
- Inflation Complicates Borrowing Costs
- Banks Face Opportunities and Sector-Specific Risks
- Energy Imports and External Financing Remain Key Exposures
- Infrastructure Spending Faces Financial Sustainability Tests
- Manufacturing Productivity Will Shape Future Investment
- Growth Forecast Upgrade Raises the Bar for Investment
Published in the IMF’s October World Economic Outlook, the revised projections represent increases of 0.5 percentage points for both years compared with the Fund’s April forecasts. Relative to its June assessment, the 2026 estimate rose from 2.8%, while the 2027 projection remained at 4%.
The upgrade follows stronger economic activity supported by construction, household spending and new export-oriented manufacturing capacity. Nevertheless, the sustainability of the recovery will depend on whether investment generates higher productivity, competitive industrial output and sufficient export earnings.
Construction and Domestic Demand Support Growth
Serbia’s GDP grew 3.8% year-on-year in the second quarter of 2026, accelerating from 3.2% in the first quarter, according to the Statistical Office. Construction recorded 9.1% growth in gross value added, while trade, transportation, accommodation and food services expanded by 4.4%. Professional, scientific, technical and administrative services increased by 5.8%, and household consumption rose 4%.
Gross fixed capital formation increased 3.3%, confirming that investment contributed to economic expansion, although its growth was slower than construction output. Exports of goods and services rose 4.1%, while imports increased by a faster 5.2%. The difference between export and import growth matters because investment programmes often require imported machinery, industrial equipment and construction materials before new assets begin generating additional export revenue.
Serbia’s infrastructure programme, encompassing roads, railways, energy systems and construction associated with EXPO 2027, remains an important driver of activity. Manufacturing expansion and agricultural recovery are also expected to support growth.
The longer-term economic benefits, however, depend on whether infrastructure reduces transport costs, improves electricity reliability and logistics, and enables private companies to increase production. Higher construction spending alone does not guarantee equivalent improvements in industrial competitiveness.
Industrial Output Remains Uneven
Industrial indicators show that the recovery has yet to spread broadly across manufacturing. Industrial production declined 0.5% year-on-year in August, while manufacturing output fell 1.8%. Mining production, by contrast, increased 6.7%. Across January–August, total industrial production grew just 0.1%, highlighting the gap between headline GDP growth and industrial performance.
Automotive suppliers, electrical-equipment manufacturers, metals processors and chemical companies remain exposed to demand conditions in Germany, Italy and other major European markets. Stronger domestic consumption and construction cannot fully offset weaker orders from export customers. New manufacturing facilities can expand Serbia’s production capacity, but their contribution depends on customer contracts, equipment commissioning, workforce availability and access to competitively priced electricity. Higher labour and energy costs can also weaken operating margins.
For banks and investors, the distinction between installed capacity and profitable production is critical. Facilities operating below their planned utilisation rates may generate weaker cash flows than anticipated, even when overall economic growth is improving.
Inflation Complicates Borrowing Costs
Serbia’s annual consumer-price inflation accelerated to 4.1% in September, up from 2.2% in August. Prices increased by only 0.2% month-on-month, meaning the rise in the annual rate did not correspond to an equivalent monthly price increase. Part of the acceleration reflected comparison with September 2025, when government restrictions on retail margins contributed to an unusually low inflation reading.
The IMF forecasts average inflation of 3.1% in 2026 and 4.2% in 2027. Serbia’s inflation target is 3%, with a tolerance band of 1.5% to 4.5%, leaving September’s reading within the permitted range but close to its upper boundary.
The National Bank of Serbia (NBS) kept its benchmark interest rate at 5.75% on October 8. The deposit facility rate remained at 4.5%, while the lending facility rate stood at 7%.
The central bank cited international uncertainty, rising energy prices and potential disruptions to supply chains and capital flows. Serbia’s reliance on imported crude oil, petroleum products and natural gas leaves transportation, agriculture and manufacturing exposed to changes in international energy markets. Persistent inflation could limit the scope for monetary easing and prolong relatively expensive dinar financing for companies investing in production equipment, commercial property, logistics assets and working capital.
Euro-denominated loans may offer different interest-rate conditions but can expose companies to currency risk when their revenues are primarily earned in dinars. The IMF’s projections point to the possibility of higher inflation in 2027 even as economic growth strengthens.
Banks Face Opportunities and Sector-Specific Risks
Improving economic activity could support demand for corporate lending, investment finance, leasing and trade-related banking services. However, banks will need to distinguish between businesses benefiting from the recovery and borrowers facing structural or cyclical pressures. Export-oriented manufacturers require assessments of European demand, customer concentration and the durability of supply contracts. Construction companies face risks associated with project schedules, procurement changes, receivables and the financial position of public-sector clients.
Energy-intensive businesses must account for electricity procurement, fuel expenditure, network charges and potential environmental compliance costs. Companies exporting to EU markets may also face additional expenditure under the Carbon Border Adjustment Mechanism (CBAM), particularly in steel, aluminium, cement and fertilisers. Competitive electricity, reliable emissions data and investment in lower-emission production may increasingly influence operating costs and commercial relationships.
These requirements link environmental compliance more closely to conventional credit assessments. Lenders financing industrial expansion must evaluate whether projected revenues can absorb higher costs and whether borrowers have enough liquidity to withstand periods of weaker demand. Guarantees and development-finance participation can improve lending availability but do not remove project-level commercial risks. Companies with stable export contracts, efficient operations, manageable debt and credible investment programmes may offer stronger financing prospects.
Energy Imports and External Financing Remain Key Exposures
The IMF projects Serbia’s current-account deficit at 4.6% of GDP in 2026, narrowing to 3.5% in 2027 from 4.9% in 2025. The forecast implies a gradual improvement in the external position, although the economy will continue to require substantial external financing.
Infrastructure development and manufacturing investment increase demand for imported equipment, while expensive energy imports create additional foreign-currency requirements.
Serbia’s gross foreign-exchange reserves fell by approximately €946 million in September to €29.86 billion. The NBS attributed the decline to several factors, including government foreign-currency payments, interventions in the domestic foreign-exchange market and valuation effects. The central bank also cited increased demand for foreign currency associated with energy imports. Despite the decrease, reserves remained sufficient to cover approximately 6.7 months of imports, indicating substantial external liquidity. The movement does not by itself establish an immediate balance-of-payments problem, but it illustrates how energy purchases, government financing needs and market interventions can affect the country’s foreign-currency position.
For banks and corporate borrowers, the developments underline the importance of currency-liquidity management, hedging and predictable external funding. For international investors, exchange-rate stability and adequate reserves remain important elements of Serbia’s investment environment.
Infrastructure Spending Faces Financial Sustainability Tests
Serbia continues to invest in transport infrastructure, electricity networks, public facilities and urban development, but the economic and financial returns differ significantly between projects. Railway modernisation can reduce freight costs and support industrial exports, while investment in electricity transmission and storage can improve system flexibility and facilitate renewable generation. Industrial infrastructure can also attract production capacity and strengthen regional supply chains.
Projects with limited utilisation, weak operating revenues or substantial maintenance requirements, however, can create long-term fiscal obligations. The financial position of Putevi Srbije, Serbia’s state road operator, illustrates the issue. The company reported a net loss of approximately €192 million in 2025, and the government has initiated preparations for financial restructuring.
The case highlights the potential pressures that arise when maintenance expenditure, operating responsibilities and revenue arrangements are not aligned. For international lenders, credible project preparation, transparent financing structures and robust cost-benefit analysis remain essential. The IMF’s stronger growth forecast improves the potential returns from successful infrastructure investment but does not eliminate public-finance risks.
Manufacturing Productivity Will Shape Future Investment
Serbia’s longer-term growth prospects depend on moving beyond a recovery driven partly by construction towards stronger manufacturing productivity and higher-value services. International investors assess the country as a potential production base for European markets, taking into account existing industrial infrastructure, supplier networks and skilled labour. At the same time, competition for investment is intensifying across Central and Southeastern Europe.
Electricity prices, workforce productivity, logistics, financing conditions and regulatory requirements increasingly shape investment decisions. Attracting new projects will therefore depend on the underlying economics of production as well as investment incentives.
Automation, energy efficiency, workforce development and reliable electricity supply are becoming central to industrial competitiveness. Domestic manufacturers seeking to move beyond subcontracting into higher-value production and engineering services face similar requirements. For lenders, investments that reduce operating expenditure or improve product quality may provide stronger long-term financing prospects than projects based primarily on expanding installed capacity.
Growth Forecast Upgrade Raises the Bar for Investment
The IMF’s revised projections point to stronger economic expansion than previously anticipated. Growth of 3.3% in 2026 and 4% in 2027 would mark a substantial improvement on the approximately 2% expansion recorded in 2025.
Inflation, external financing needs and uneven industrial output remain constraints. Key risks include energy-market volatility, borrowing costs, weaker European industrial demand and the financial sustainability of public investment.
Businesses must translate improving demand into higher productivity and stronger operating margins, while banks need to expand lending without underestimating exposure to energy prices, construction delays and external markets. For policymakers, the challenge is to ensure that infrastructure spending and manufacturing investment generate durable gains in exports, employment and private-sector activity. The sustainability of Serbia’s recovery will depend on whether companies can turn new investment into profitable production and lasting export revenue while inflation remains controlled.
