The National Bank of Serbia (NBS) has issued a cautionary note in its May 2026 Inflation Report, indicating that Serbia’s macroeconomic landscape is entering a phase marked by heightened volatility due to geopolitical energy risks, imported inflation, and sluggish global growth. The report emphasizes the resilience of Serbia’s banking sector, fiscal health, and domestic demand structure amidst these challenges.
The NBS highlights that while Serbia maintains a fundamentally stable economic environment, external shocks are increasingly influential on inflation rates, monetary policy risks, and uncertainties regarding medium-term growth. The report was completed amid escalating tensions in the Middle East, which have been identified as a key macroeconomic risk for Serbia and the global economy. The closure of the Strait of Hormuz and assaults on regional energy infrastructure have resulted in significant oil price hikes and broader commodity market fluctuations, impacting inflation expectations and financial markets worldwide.
Projected GDP growth for Serbia has been revised down to 3.0% for 2026 from an earlier estimate of 3.5%, with expectations of a rebound to 4.5% in 2027, largely driven by infrastructure developments related to Expo 2027. This adjustment underscores concerns about Serbia’s reliance on imported energy costs, European demand, and foreign investment flows.
Despite current inflation levels being relatively controlled—recording a year-on-year rate of 2.8% in March 2026, just below the NBS target midpoint of 3%—the central bank anticipates that inflation may temporarily exceed the upper target limit by late 2026 and early 2027 due to rising global energy prices and adverse base effects. This marks a shift from earlier assessments that suggested a more secure path toward inflation normalization.
The report indicates changes in the structure of inflation, with food prices remaining stable due to government interventions and previous retail margin limitations. In March, food and non-alcoholic beverage prices decreased by 1.2% year-on-year. Conversely, inflationary pressures are now emerging primarily from services and energy sectors. Core inflation averaged 4.2% in Q1 2026, driven mainly by service prices that rose by 6.3% year-on-year in March, attributed to increased labor costs and growth in real household disposable income.
Energy prices have surged following geopolitical tensions in the Middle East, with domestic petroleum product prices increasing by 3.5% during February and March due to global oil price spikes. The NBS noted that stronger price increases were curtailed by government measures to temporarily reduce fuel excise duties by up to 25%, indicating a shift towards using fiscal policy as a tool for managing inflation.
The central bank has maintained its key policy rate at 5.75% since September 2024, signaling a cautious approach rather than aggressive tightening. This strategy aims to balance the risk of stifling growth against the need to anchor inflation expectations amid potential instability.
Inflation expectations among financial sector players remain close to the NBS target midpoint of 3%, while corporate expectations are around 4%. The Serbian banking sector is showing resilience, with lending growth reaching nearly 17% year-on-year in March, bolstered by both corporate working capital and household loans. Non-performing loans remain low at just 2.1% of total loans, suggesting a stronger banking system compared to past crises.
Foreign-exchange reserves stood at €28.2 billion at the end of April despite interventions totaling approximately €1.2 billion in foreign exchange market sales during Q1 and April combined. These reserves are viewed as crucial for absorbing external shocks and mitigating capital flow volatility.
On the fiscal front, Serbia’s deficit reached 4.5% of projected GDP in Q1, exceeding the planned annual target of 3%. This increase is attributed to infrastructure spending as well as public wages and subsidies; however, public debt remains manageable at about 42% of GDP.
The report emphasizes the significance of Expo 2027 as part of Serbia’s economic strategy, linking future growth prospects closely to successful execution of large-scale public investment initiatives.
The current account deficit stood at only 0.8% of GDP in Q1 but is expected to widen towards approximately 6% due to rising energy import costs. Goods exports grew by 7.4% year-on-year, primarily driven by manufacturing and automotive sectors.
The NBS extensively analyzes the transmission mechanisms of imported inflation within Serbia’s economy, revealing that approximately 54% of inflationary impacts from rising petroleum product prices are direct while about 46% arise indirectly through production cost increases across various sectors.
Despite these challenges, the overall tone of the report remains measured rather than alarmist, suggesting that Serbia possesses adequate institutional and financial buffers to navigate current economic pressures if geopolitical tensions do not escalate significantly further. The macroeconomic outlook for Serbia through 2026-2027 is thus closely tied to three external variables: global energy prices, European demand conditions, and geopolitical stability.
