Raiffeisen Bank has revised its outlook for Serbia’s economy, increasing its 2026 GDP growth forecast to 2.8% from 2.4% and lowering its year-end inflation projection to 5.7% from 6.1%. The updated assessment reflects stronger-than-expected economic activity in the first quarter, improved agricultural conditions and lower global oil prices following the US-Iran peace agreement.
The revised forecast partially reverses the more cautious outlook published in April, when heightened tensions in the Middle East led to expectations of a prolonged energy price shock. Despite the improved projections, the bank said Serbia’s economic performance remains closely tied to household consumption, public infrastructure spending, a narrow group of export industries and the unresolved ownership and sanctions situation surrounding Naftna Industrija Srbije (NIS).
Economic growth of 2.8% would represent an improvement from approximately 2% in 2025. The projection matches the International Monetary Fund’s forecast while remaining slightly below the National Bank of Serbia’s expectation of 3% growth.
Domestic demand continues to support expansion
Serbia’s economy expanded by 3.2% year-on-year in the first quarter of 2026, providing a stronger starting point than Raiffeisen had anticipated. Economic indicators for April and May also remained broadly positive, although growth became increasingly uneven across sectors.
The bank expects household consumption to remain the principal driver of economic activity, supported by rising real wages and remittance inflows. Consumer demand is also benefiting from public expenditure linked to EXPO 2027 and the broader Leap into the Future infrastructure programme.
While these factors provide resilience for domestic demand, they also increase the economy’s dependence on wages, transfers and state-financed construction rather than a broad-based industrial recovery. Strong consumption continues to support retail trade, services and tax revenues, but also stimulates imports of consumer goods and equipment, limiting the contribution of net exports to GDP.
Government investment in roads, railways, utilities, urban infrastructure and Expo-related projects is expected to remain an important stabilising factor through 2026 and 2027. At the same time, Serbia’s programme with the IMF requires the fiscal deficit to remain close to or below 3% of GDP, reducing the scope for additional untargeted spending or permanent subsidy programmes. Raiffeisen noted that economic growth could still fall short of its revised forecast if energy markets experience renewed disruption, eurozone demand weakens further or operational issues emerge at NIS.
Lower headline inflation masks underlying pressures
The bank also revised its inflation outlook after Serbia’s headline inflation slowed to 2.7% year-on-year in June, down from 3.5% in May. The latest reading brought inflation close to the National Bank of Serbia’s central target of 3% and within its tolerance band of 1.5% to 4.5%.
Raiffeisen’s 5.7% forecast refers to inflation at the end of 2026, rather than the annual average, indicating that price growth is expected to accelerate during the second half of the year and move above the central bank’s target range. The National Bank of Serbia forecasts average inflation of approximately 3.6% for 2026, making the two projections not directly comparable because annual averages may remain moderate even if inflation accelerates toward year-end.
Lower food prices contributed significantly to June’s inflation slowdown. A favourable agricultural season and abundant supplies of fruit and vegetables led to a 0.6% monthly decline in food and non-alcoholic beverage prices. Transport prices also moderated, increasing only 0.2% month-on-month after rising 1% in May as international oil prices retreated. Food prices carry significant weight in Serbia’s consumer basket, meaning a strong harvest can quickly reduce headline inflation, strengthen household purchasing power and ease wage pressures. Those gains remain vulnerable to adverse weather, supply disruptions and higher fertiliser or energy costs.
Raiffeisen expects international oil prices to remain relatively elevated despite the peace agreement between the United States and Iran, citing replenishment of strategic petroleum reserves and continued uncertainty over the implementation of the agreement. Serbia’s temporary reduction in fuel excise duties helped cushion higher oil prices, but the bank expects the measure to be withdrawn as market conditions stabilise. Restoring excise duties would immediately raise fuel prices and increase transport, agricultural and industrial costs.
Inflation is also expected to accelerate because of statistical base effects. Retail margin controls introduced in September 2025 temporarily reduced measured prices, and once those lower comparison months fall out of annual calculations from September 2026, year-on-year inflation is expected to increase even without an exceptional monthly price shock. Underlying inflationary pressure remains elevated. Core inflation increased to 4.6% in June from 4.5% in May, indicating continued price pressure from wages, services, rents and other domestically generated costs despite the decline in headline inflation.
Raiffeisen therefore expects the National Bank of Serbia to keep its reference interest rate at 5.75% through the end of 2026, reflecting expected inflationary pressures, energy-market risks and the need to maintain exchange-rate stability and inflation expectations.
The outlook suggests Serbian businesses will continue to face relatively expensive financing conditions. Corporate borrowing, working-capital loans and investment financing are expected to remain costly, particularly for smaller companies with limited collateral or restricted access to euro-indexed credit. Households are benefiting from slower food inflation and rising real wages, but borrowing conditions are unlikely to improve significantly while core inflation remains elevated and year-end inflation is expected to exceed the central bank’s target range.
Industrial production loses momentum
Industrial activity weakened during the second quarter despite stronger GDP growth. Industrial production increased only 0.3% year-on-year in May, slowing sharply from 3.4% growth recorded in April. Manufacturing, electricity generation and mining all contributed to the weaker performance. Electricity production declined 8.6% year-on-year in May after falling 7.7% in April, reducing the energy sector’s contribution to GDP and potentially increasing Serbia’s dependence on electricity imports during periods of high domestic demand or weaker hydrological and thermal generation.
Manufacturing activity was affected by lower production of coke and refined petroleum products, with uncertainty surrounding NIS remaining the principal factor. The company owns and operates Serbia’s only crude oil refinery in Pančevo. The current operating licence issued by the US Treasury’s Office of Foreign Assets Control (OFAC) expires on July 31, 2026. Raiffeisen expects negotiations over the sale of the Russian-controlled majority stake to continue through the autumn and potentially beyond.
The proposed transaction requires agreement among Gazprom Neft, Gazprom, Hungary’s MOL Group, the Serbian government and OFAC, involving issues related to valuation, financing, sanctions compliance, governance and regional energy security. Although repeated licence extensions reduce the immediate risk of supply disruption, uncertainty continues to affect refinery operations, crude procurement, pipeline deliveries, banking relationships and investment decisions. The impact extends beyond the oil sector, affecting transport, agriculture, construction, chemicals and manufacturing, where companies may maintain larger inventories to reduce supply risks, increasing working-capital requirements and financing costs.
Electric vehicles drive export growth
Automotive manufacturing remained one of Serbia’s strongest industrial sectors despite slower growth. Output from the sector increased 30.4% year-on-year in May, down from 52.2% in April, reflecting continued expansion in electric vehicle production from a relatively low base.
The production ramp-up at Stellantis’ Kragujevac plant, following a €190 million conversion programme supported by approximately €48 million from the Serbian government, has become a major contributor to export performance. The facility manufactures the Fiat Grande Panda, representing Serbia’s first large-scale electric vehicle production programme. Serbia’s exports increased by approximately €1 billion during the first five months of 2026, but the gains were concentrated in a limited number of sectors.
Exports of electric vehicles rose by €818.1 million, while exports of metal ores and metal waste increased by €287 million. Together, the two categories contributed around €1.105 billion, exceeding the country’s overall export growth. The figures indicate that most other export industries either recorded declining exports or only marginal increases, leaving the broader export base significantly more concentrated.
This concentration increases Serbia’s exposure to production disruptions, weaker European demand or supply-chain interruptions affecting individual industrial facilities such as the Kragujevac plant. Export performance in the mining sector also remains dependent on commodity prices, mine output and international demand. While higher electric vehicle exports support manufacturing employment and improve the trade balance, imported batteries, electronics, components and production equipment reduce the sector’s domestic value added. Longer-term economic benefits will depend on expanding local component production, engineering capabilities and domestic supplier networks.
Serbia’s automotive industry also remains closely integrated with manufacturing supply chains in Germany, Italy, France and Central Europe, making domestic production vulnerable to weaker eurozone demand, lower vehicle sales and changes in European industrial policy.
Energy exports face new structural challenges
Other export industries showed weaker performance. Growth in exports of rubber products and non-ferrous metals slowed to €47.1 million, compared with €187.6 million during the same period of 2025, reflecting weaker eurozone demand and the impact of US sectoral tariffs on European and Serbian exports.
Electricity exports also deteriorated. During the first five months of 2026, export values declined by €189.4 million, compared with an increase of €122.6 million a year earlier. The decline coincided with lower domestic electricity production and the implementation of the European Union’s definitive Carbon Border Adjustment Mechanism (CBAM).
The new carbon border regime increases costs for carbon-intensive electricity exports to the EU, reducing the competitiveness of Serbia’s coal-based electricity generation relative to lower-carbon producers. As CBAM reporting, verification and certificate requirements expand, carbon intensity will increasingly influence export margins, creating additional investment requirements for Elektroprivreda Srbije (EPS), renewable energy developers and transmission operator EMS.
Investment in wind, solar, hydropower, energy storage and transmission infrastructure has therefore become increasingly important not only for decarbonisation but also for maintaining Serbia’s export competitiveness and controlling energy costs for domestic manufacturers supplying the European market.
Credit profile remains supported despite external risks
Serbia continues to benefit from an investment-grade sovereign rating from S&P Global Ratings, which assigns BBB- with a stable outlook. Fitch Ratings maintains BB+ with a positive outlook, reaffirmed in July 2026, while Moody’s Ratings assigns Ba2 with a stable outlook.
The improved GDP and inflation forecasts support Serbia’s macroeconomic outlook, but rating agencies are expected to continue monitoring fiscal discipline, developments surrounding NIS, the current-account balance, state-owned energy companies and the fiscal implications of EXPO 2027 investments.
Raiffeisen’s revised projections indicate stronger domestic demand, improved agricultural conditions and support from major industrial projects, while export growth remains concentrated in electric vehicles and metal commodities. At the same time, persistent core inflation, the expected restoration of fuel excise duties and external risks linked to European demand, carbon pricing and geopolitical developments continue to shape Serbia’s economic outlook through the remainder of 2026.
