Serbia entered mid-2026 with real GDP growth of 3.2% year on year in Q1 2026, while high-frequency indicators cited in the June MAT report point to growth of around 3.5% in the first four months of the year. The International Monetary Fund projects Serbia’s economy to expand by about 2.8% in 2026, followed by 4.0% in 2027, suggesting that early-year momentum may not be sufficient to sustain growth above 3% without stronger industrial performance in the second half.
Despite solid headline expansion, underlying industrial dynamics remain uneven across sectors.
Industrial Output Shows Limited Broad-Based Expansion
Industrial production increased by 3.4% year on year in April 2026, but cumulative growth for January–April was only 0.2%. Manufacturing output rose 1.0%, while mining declined 1.3%, and electricity, gas, steam and air-conditioning supply fell 2.3% over the same period.
In April alone, the energy supply sector contracted 7.7%, driven by weaker thermal and hydro generation. Hydro production remained 7.6% below its multi-year average, despite a cumulative improvement compared with the previous year.
Sector Concentration Drives Manufacturing Performance
Manufacturing growth is being driven by a limited set of industries. Motor vehicles, pharmaceuticals, rubber and plastics, paper, machinery, and refinery-linked production accounted for most of the expansion.
At the same time, several key sectors remained weak or volatile, including food production, basic metals, clothing, furniture, electronic and optical products, and other transport equipment. Manufacturing output increased in only 9 of 24 branches during the first four months of 2026, representing just 29.8% of the manufacturing sector.
Narrow Industrial Base Challenges Diversification Narrative
Serbia’s economic model has been presented to investors as diversified across automotive, mining, ICT services, agri-food, metals, construction materials, logistics, and energy.. The data indicate a more concentrated structure.
Automotive production has become a significant macroeconomic driver, while refinery-linked output from the Pančevo refinery can materially influence industrial performance. Energy production remains unstable, and food manufacturing, accounting for nearly 19.6% of total manufacturing, continues to show uneven results. Basic metals are also under pressure from EU trade measures and weak demand conditions.
2026 Outlook Points to Consumption-Led Growth
MAT forecasts total industrial production growth of only 0.5% in 2026, with manufacturing expected to decline 1.0% over the year. Retail trade is projected to grow 4.5% in real terms, exports 7.0% in euro terms, imports 8.5%, and consumer prices 3.5% December-on-December. The projection suggests that domestic consumption and export values will support GDP growth, while physical industrial output remains largely flat.
Investment Perspective Highlights Concentration Risk
For banks and corporate investors, Serbia’s economy is not entering recession, but the composition of growth is becoming more concentrated. The industrial base is increasingly sensitive to performance in a limited number of sectors, including automotive production, refinery operations, electricity generation, EU demand conditions, and the execution of major FDI projects.
The 2026 growth profile therefore reflects a concentrated structure rather than a broad industrial expansion, with key risks and opportunities increasingly tied to sector-level performance rather than headline GDP figures.
