Serbia’s construction sector entered 2026 with a significant split between building projects and civil-engineering works. The nominal value of construction works performed by Serbian contractors increased 0.5% in the first quarter, but real activity declined 6.2% after adjusting for price changes.
The results indicate that the market is not experiencing a broad contraction, but rather a shift in the composition of construction activity, with building projects expanding while infrastructure-related works remain under pressure.
Building Projects Offset Civil Engineering Decline
Real construction activity on buildings increased 22.3% year on year in the first quarter, supported by residential, commercial and other building developments. At the same time, civil-engineering activity declined 21.8%, affecting segments such as roads, railways, utilities, energy infrastructure and other engineering projects.
For construction works carried out within Serbia, total activity decreased by approximately 5% in constant prices. Building construction rose 25.4%, while civil engineering dropped 21.5%, reinforcing the shift toward building-related projects rather than signalling a general market decline.
New Contracts Point to Stronger Future Workload
Despite weaker current output, the construction pipeline strengthened significantly. New contracts signed for projects in Serbia increased 85.6% year on year, while the value of new contracts secured by Serbian contractors rose 86.2%. The increase suggests that lower physical activity at the beginning of the year may be temporary, with a larger execution cycle expected during the remainder of 2026 and into 2027.
Signed contracts do not immediately translate into construction revenue. Large projects require completed designs, land availability, permits, advance financing, mobilisation and procurement before physical works can begin. The expected workload, including transport projects, utility investments and Expo 2027 infrastructure, could place additional pressure on contractor capacity and execution resources.
Labour Availability Creates Delivery Risks
Employment indicators remain weaker than the construction order pipeline. The number of workers engaged at construction sites in Serbia declined 5.5%, while total hours worked decreased 6.9%. For Serbian contractors including their operations abroad, employment fell 6.4%, and hours worked declined 7.8%.
The contrast between expanding order books and reduced workforce availability creates execution risks. Contractors may need to increase recruitment, expand subcontracting or rely more heavily on imported labour, potentially increasing costs and affecting productivity during project mobilisation.
Foreign Activity Declines While Domestic Demand Gains Importance
Serbian contractors recorded a substantial decline in international activity. The nominal value of construction works completed abroad fell to 48.3% of the first-quarter 2025 level. As a result, domestic public and private investment is becoming increasingly important for maintaining contractor revenues and supporting sector activity.
The permitting pipeline indicates continued potential for building development. The number of issued construction permits increased 7.5% during January-April, including growth of 5.8% for buildings and 15.9% for other construction projects. The number of planned residential units increased 5.9%, while total useful floor area remained unchanged, indicating a reduction in average dwelling size rather than a proportional expansion of residential space.
Higher Input Costs Affect Project Economics
Nominal construction growth does not fully reflect the pressure on project profitability. During the period, prices increased for imported petroleum products, steel, chemicals, electronics and specialised equipment, raising costs across construction supply chains. Projects may therefore generate higher nominal turnover while delivering lower physical output and facing reduced contractor margins.
The increase of more than 85% in new contracts provides visibility for future construction activity but also highlights challenges related to execution capacity, working capital and contract management. Banks and investors need to differentiate between signed agreements, issued notices to proceed, secured procurement arrangements and actual construction mobilisation when assessing project progress.
Serbia’s construction sector has the potential for stronger activity growth, but the outcome will depend on the ability of contractors to execute the expanding project pipeline while managing cost increases, labour constraints and delays in civil-engineering works.
