Serbia’s 2026 Growth Accelerates as Industry and FDI Lag Behind

Serbia’s economy expanded faster than expected in the second quarter of 2026, with real GDP growth reaching 3.6% year on year, but underlying indicators show a more uneven recovery shaped by exports, household demand and financial inflows rather than broad industrial expansion.

The latest data from the Statistical Office of the Republic of Serbia show stronger merchandise exports, lower inflation and a significant reduction in the current-account deficit. At the same time, industrial production remains weak, registered employment has declined, foreign direct investment has slowed and portfolio capital has become a larger source of external financing. The second-quarter GDP result compares with 2% growth in 2025 and exceeds the 3% full-year growth projection of the Ministry of Finance.

Economic growth supported by exports and domestic demand

The Ministry of Finance expects Serbia’s nominal GDP to reach approximately RSD 11.07 trillion in 2026, compared with RSD 10.39 trillion in 2025 and RSD 9.75 trillion in 2024. The projected nominal increase of around 6.5% reflects real economic growth combined with a more moderate inflation contribution than during the energy and food price shock period.

Measured in euros, Serbia’s GDP reached approximately €88.7 billion in 2025, while GDP per capita increased to around €13,545, compared with €12,641 in 2024. Exchange-rate stability has allowed nominal growth to translate into higher euro-denominated output. Based on current projections and exchange-rate levels, Serbia’s economy could approach €94 billion to €95 billion in 2026.

The latest quarterly performance indicates that the government’s growth target remains achievable, although final results will depend on agricultural output, electricity production, construction activity and European industrial demand. Serbia remains exposed to weather conditions, hydrological changes and energy-sector performance, which can significantly affect quarterly economic results.

Trade balance improves as exports outperform imports

Foreign trade has become the strongest contributor to economic performance. Merchandise exports reached €17.97 billion in January–June 2026, representing growth of 8.3% compared with the same period of 2025. Imports increased more slowly, rising 3.7% to €21.68 billion. Total merchandise trade reached €39.65 billion, an increase of 5.8% in euro terms. The goods deficit narrowed by 14.1% to €3.71 billion, while export coverage of imports improved from 79.4% to 82.9%. The improvement reduces Serbia’s external financing needs while maintaining significant imports of machinery, energy, components and industrial inputs.

During the first five months of 2026, intermediate goods imports reached €6.12 billion, while capital goods imports amounted to €3.31 billion. Together, these categories represented approximately 53% of total imports, indicating continued production activity and investment demand, although capital spending remains uneven across sectors.

EU remains Serbia’s largest trade partner

The European Union accounted for 58.7% of Serbia’s total trade during the first half of 2026. EU exports reached €9.27 billion by May, representing approximately 63% of Serbia’s merchandise exports. Serbian exporters remain closely integrated with European manufacturing supply chains, particularly in metals, electrical equipment, automotive components, agriculture and processed goods. Serbia also maintained a strong surplus with CEFTA markets. Exports to CEFTA countries reached €2.37 billion, while imports stood at €782 million, creating a surplus of approximately €1.59 billion. The export-to-import ratio exceeded 300%, with cereals, beverages, vehicles, pharmaceuticals and electrical equipment among the main contributors.

Industrial recovery remains limited despite export growth

The export improvement has not translated into broad industrial expansion. Industrial production increased only 0.7% in the first half of 2026. Manufacturing output grew 1.8%, while total industrial production remained constrained by weaker energy and mining performance.

June manufacturing data showed stronger annual growth of 2.8%, but seasonally adjusted output declined 1.3% compared with May. The strongest industrial signal came from capital-goods production, which increased 11.3% during January–June. Production of intermediate goods excluding energy rose 2.4%, indicating stronger activity in parts of the machinery, equipment, automotive and supplier sectors. Several important industrial segments contracted.

Energy production declined 3.6% during the first half, while electricity, gas, steam and air-conditioning output fell 10.4% year on year in June. Mining output decreased 0.6%, although metal-ore extraction increased 2.9%. Basic metals production fell 11.7%, fabricated-metal production declined 8%, computer and electronic products dropped nearly 20%, clothing production decreased 11.6%, and durable consumer goods output fell 13.2%.

Metals and energy sectors face competitiveness pressures

Weakness in basic metals is significant because Serbia’s steel, copper and downstream metal industries are major exporters, energy consumers and industrial employers. These sectors are entering a period of increasing pressure from European climate regulations, including the Carbon Border Adjustment Mechanism (CBAM).

Manufacturers will increasingly compete on verified emissions levels, electricity sources and the quality of industrial monitoring systems. With the dinar remaining stable, exporters have limited ability to offset higher wages, energy costs or carbon-compliance expenses through currency adjustments. Industrial competitiveness will increasingly depend on productivity improvements, automation and access to lower-carbon electricity.

The decline in domestic energy production also creates wider risks. Lower electricity output increases exposure to imports during periods of high prices and affects the position of Elektroprivreda Srbije (EPS). Future industrial growth will depend on transmission expansion, renewable integration, storage capacity, rehabilitation of existing generation assets and additional balancing resources.

Current account deficit declines sharply

Serbia’s external position improved significantly in early 2026.

The current-account deficit reached €560.6 million in January–May 2026, a reduction of 68.9% compared with the same period of 2025.

The improvement came from several components:

• the goods deficit declined 21.7%;
• the services surplus increased 30.4%;
• the secondary-income surplus grew 15%;
• the primary-income deficit decreased 1.4%.

In May alone, the current-account deficit was €124.8 million, around €340 million lower than a year earlier. Services generated a surplus of approximately €1.21 billion during January–May, compared with around €925 million in the same period of 2025.

Information technology, transport, professional services and tourism contributed to reducing the impact of the merchandise deficit. The secondary-income account recorded a surplus of approximately €2.34 billion, supported largely by remittances.

Portfolio capital replaces FDI as main external financing source

Foreign direct investment has become the weaker element of Serbia’s external financing structure. The National Bank of Serbia (NBS) reported €893 million of FDI inflows during January–May 2026. Earlier Ministry of Finance data recorded €357 million of net FDI during January–April, highlighting differences between gross inflows, net investment balances and broader financial-account calculations.

Regardless of methodology, FDI has slowed compared with recent years. Net FDI declined from approximately €4.6 billion in 2024 to €2.28 billion in 2025. The 2025 level was slightly more than half of the previous year’s amount and represented around 2.6% of GDP, compared with 5.5% in 2024. At the same time, Serbia recorded approximately €3.7 billion of net portfolio inflows during January–May 2026.

Portfolio capital has therefore become the largest source of new external financing. The shift is partly linked to international bond issuance and government pre-financing of infrastructure and budget needs. While portfolio inflows strengthen liquidity and foreign-exchange reserves, they differ from FDI, which is directly linked to factories, logistics facilities, technology operations, energy assets and industrial capacity.

Foreign reserves and currency stability remain strong

Serbia’s foreign-exchange position remains a major support factor. Gross foreign-exchange reserves stood at approximately €29.6 billion in June, close to recent record levels. The reserves covered slightly less than seven months of goods and services imports and around 164% of M1 money supply.

The National Bank of Serbia held 54.6 tonnes of gold, more than three times the amount recorded in 2012. Gold accounted for just under 21% of total reserves. The dinar weakened by only around 0.1% against the euro during the first half of 2026. The NBS sold a net €755 million on the interbank foreign-exchange market during the period, but purchased €405 million in June as appreciation pressures returned. Inflation remained contained. Consumer inflation reached 2.7% in June, within the NBS target corridor of 3% ±1.5 percentage points. Average inflation during January–May was 2.9%, compared with 3.8% in 2025 and 4.6% in 2024.

Wages and household lending drive domestic demand

Real income growth continued to support consumption. Average net salaries reached RSD 118,398 in May, while the January–May average was approximately RSD 119,500. Net wages increased 11.3% nominally and 8.2% in real terms compared with the same period of 2025. The median net wage was significantly lower at RSD 93,277, showing a substantial gap between average and typical earnings. Average pensions reached approximately RSD 56,847, contributing to household purchasing power. Retail turnover increased 4.3% in real terms in June, following 6.2% real growth in May.

Bank lending data confirm the household-led nature of the expansion. Household loans increased from RSD 1.94 trillion at the end of 2025 to RSD 2.08 trillion by May 2026, a rise of 7.2%. Corporate credit increased only 0.8%, from RSD 2 trillion to RSD 2.01 trillion. Households now account for approximately 50.9% of combined lending to companies and individuals.

Employment weakens despite economic expansion

Employment indicators remain weaker than headline GDP growth suggests. Registered employment stood at approximately 2.356 million workers in the second quarter, around 14,163 fewer than a year earlier. The ILO unemployment rate reached 8.9% in the first quarter of 2026, compared with a 2025 average of 8.7%.

The economy is expanding without significant employment growth, reflecting labour shortages, demographic trends, automation and changes in investment patterns.

Fiscal position provides room for adjustment

Serbia entered the next investment cycle with a stronger public-debt position. General government debt declined to approximately 44.7% of GDP in 2025, from 46.9% in 2024 and more than 68% in 2015. The fiscal deficit increased from around 2% of GDP in 2024 to 2.4% in 2025. The revised fiscal framework allows a deficit of approximately 3% in 2026.

Consolidated expenditure represented 43.36% of GDP in 2025, while revenue accounted for 40.93%. The primary deficit stood at approximately 0.76% of GDP. Serbia’s interest burden was around 1.64% of GDP, equivalent to approximately RSD 171 billion, in 2025. With inflation declining, future debt reduction will increasingly depend on real economic growth and fiscal discipline rather than nominal GDP expansion.

Serbia’s 2026 performance combines stronger exports, lower inflation, improved external balances and stable reserves with weaker industrial momentum, slower corporate lending and reduced FDI inflows. The economy is expanding, but growth is increasingly supported by household consumption and portfolio financing rather than a broad investment cycle driven by factories, industrial expansion and foreign direct investment.