Serbia recorded 3.2% year-on-year real GDP growth in the first quarter of 2026, maintaining positive economic momentum despite weaker European demand, uncertainty in the energy sector and a more challenging regional investment environment. However, the structure of that growth reveals a widening divergence between expanding service-based activity and a contracting industrial sector.
- Services and Household Spending Drive Growth
- Economists Highlight Structural Concerns
- Manufacturing Shows Mixed Performance
- Energy and Mining Continue to Weigh on Output
- Infrastructure Spending Supports Economic Activity
- Consumption Remains the Strongest Growth Engine
- Regional Employment and Industrial Competitiveness
- Services, Industry and Future Growth Capacity
While overall economic output continued to increase, industrial production moved in the opposite direction, highlighting a growing imbalance that is attracting attention from investors, lenders and policymakers assessing the country’s medium-term growth prospects.
The contrast is evident in official first-quarter data. Total industrial production declined by 0.8% compared with the same period a year earlier. All three major industrial segments recorded negative results. Manufacturing output fell 0.4%, mining decreased 3.2%, and electricity, gas, steam and air-conditioning supply contracted 0.9%. Manufacturing and mining each reduced total industrial production by 0.3 percentage points, while the energy sector lowered the aggregate figure by an additional 0.2 percentage points.
Services and Household Spending Drive Growth
Despite weakness in industry, GDP growth remained positive due to strong performance in services and domestic demand. Services excluding trade contributed 2.1 percentage points to overall economic growth, making them the largest sectoral contributor during the quarter.
On the demand side, private consumption expanded by 4.9%, accounting for 2.9 percentage points of GDP growth. Investment activity increased by 1.4%, adding 0.3 percentage points to growth. Foreign trade also supported economic performance. Exports rose 4.6%, while imports increased 3.6%, resulting in a positive net contribution from trade.
The composition of growth has raised questions about the balance between consumption-led expansion and the performance of sectors that generate tradable output, industrial employment and export-oriented production. Serbia has developed significant capabilities in information technology, engineering services, outsourcing, telecommunications, logistics and digital business activities. First-quarter figures also show the importance of household spending, public investment and construction activity in sustaining overall economic growth.
Economists Highlight Structural Concerns
According to Professor Ljubodrag Savić of the Faculty of Economics at the University of Belgrade, the growing share of services in economic output should not automatically be interpreted as evidence of a completed structural transformation. The increase may partly reflect weaker performance in the productive sectors of the economy, particularly industry.
This distinction is significant because service-sector expansion can emerge either from gains in productivity and exportable expertise or from slower growth in manufacturing and other industrial activities. External conditions have also influenced industrial performance. Serbia’s manufacturing sector remains closely linked to European demand through automotive supply chains, intermediate goods production and export-oriented factories serving EU markets.
Industrial stagnation in Germany, weaker eurozone growth, energy-price volatility and uncertainty in automotive production networks have affected manufacturers operating in Serbia.
Manufacturing Shows Mixed Performance
Manufacturing, which represents 76.2% of total industrial production, recorded an overall decline during the quarter, although performance varied considerably across subsectors. Among the strongest performers, production of motor vehicles and trailers surged 51.5%, pharmaceutical production increased 6.2%, and output of rubber and plastic products rose 5.3%.
These gains indicate continued activity in sectors supported by investment, export demand and specialised production. Production declined in 15 manufacturing branches representing 50.5% of total industrial output.
The largest drop occurred in coke and refined petroleum products, where output fell 21.7%. Food manufacturing declined 1.4%, while fabricated metal products excluding machinery and equipment contracted 4.1%. These sectors play important roles in employment, exports, supplier networks and regional industrial activity.
Energy and Mining Continue to Weigh on Output
The decline in petroleum-related production has broader implications because it is linked to refinery operations, fuel supply, energy security and ongoing issues surrounding NIS, gas supply arrangements and sanctions-related exposure. Mining output also remained under pressure during the quarter. Production declined 2.3% in January, fell 9.0% in February and increased 1.2% in March, producing an overall quarterly decline of 3.2%.
The sector remains important for Serbia’s production of copper, coal, industrial minerals and aggregates, as well as for wider discussions concerning critical raw materials. Electricity, gas, steam and air-conditioning supply contracted throughout the quarter. Output fell 0.8% in January, 1.6% in February and 0.1% in March.
Energy-sector performance remains a critical factor for manufacturing competitiveness, export-oriented production and future industrial investment.
Infrastructure Spending Supports Economic Activity
Public investment continued to play a significant role in supporting economic growth. According to Savić, government-backed spending on EXPO-related developments and motorway construction projects has provided an important contribution to economic activity.
These projects have supported construction, transportation, services, trade and materials demand during a period of weaker industrial production. At the same time, the relatively modest 1.4% increase in investment activity suggests that private-sector capital expenditure remains limited compared with the contribution of consumption and state-supported projects.
Investment contributed only 0.3 percentage points to GDP growth, a figure that underscores the importance of stronger capital formation in export industries, logistics, energy infrastructure, advanced manufacturing and environmental upgrades.
Consumption Remains the Strongest Growth Engine
Household spending was the largest contributor to first-quarter growth. The 4.9% increase in private consumption reflects factors including wage growth, employment conditions, consumer lending, remittance inflows, pensions, public-sector income and resilient consumer demand.
The strength of consumption has benefited sectors such as retail, banking, telecommunications, services and real estate. Long-term growth prospects remain linked to productivity gains and expansion of tradable sectors capable of generating sustainable export earnings. Trade figures offered a more positive signal. Exports contributed 2.6 percentage points to GDP growth, while imports reduced growth by 2.1 percentage points, resulting in a positive net trade effect.
The export performance suggests that Serbia’s growth is not being driven solely by domestic consumption, although the decline in industrial production indicates that services exports, selected manufacturing activities and commodity-related trade flows are playing an increasingly important role.
Regional Employment and Industrial Competitiveness
Industrial performance has implications beyond output statistics. Manufacturing and mining remain important sources of employment across regional economies, while many service-sector activities are concentrated in larger urban centres, particularly Belgrade. A prolonged divergence between industrial and service-sector growth could therefore influence regional development patterns and labour-market dynamics.
The automotive sector’s 51.5% expansion highlights areas of industrial strength, but the industry remains tied to European demand conditions, the transition toward electric vehicles and investment decisions made by multinational manufacturers. Pharmaceutical production, which expanded 6.2%, represents a higher-value segment with export potential and stronger margins. Similar opportunities exist in medical products, specialised chemicals, electrical equipment, ICT-linked manufacturing and precision engineering.
Growth in rubber and plastics production also demonstrates Serbia’s continued integration into industrial supply chains, although companies in the sector face increasing pressure related to energy costs, environmental requirements, recycling standards and EU circular-economy regulations. The decline in food production is significant given Serbia’s agricultural base. The sector’s performance highlights challenges linked to productivity, margins, energy costs, technology adoption, market access and value-added processing.
Similarly, the 4.1% decline in fabricated metal products raises questions about demand conditions in construction, machinery production and industrial supply chains despite ongoing infrastructure spending.
Services, Industry and Future Growth Capacity
The first-quarter data point to an economy increasingly divided between sectors benefiting from domestic demand and government-supported investment and those exposed to weaker industrial conditions across Europe. Services remain one of Serbia’s strongest growth areas, particularly in IT, engineering, logistics, finance, tourism, healthcare, education and professional services.
The country’s information technology industry continues to demonstrate export growth, rising wages and integration with international markets. However, the broader economic model increasingly depends on links between services and productive sectors such as manufacturing, logistics, energy and industrial technology.
Infrastructure projects, including motorway construction and EXPO-related investments, are expected to influence future productivity through improvements in logistics, trade corridors, industrial zones and urban development.
The banking sector also forms part of the wider economic picture. Strong profitability within financial institutions reflects healthy credit activity, interest margins and fee income, while the allocation of capital toward industrial upgrading, export financing, energy efficiency and infrastructure remains an important factor for future growth.
For investors, Serbia’s first-quarter performance presents a mixed picture. Economic activity remains positive, consumer demand is resilient, exports continue to grow and services are expanding. At the same time, industrial production, mining and energy output remain under pressure, while investment growth is relatively modest and public spending continues to provide a significant stabilising influence on overall economic performance.
