Serbia’s economy grew 3.8% year on year in the second quarter of 2026, accelerating from 3.2% in the first quarter and annual growth of just 2.0% in 2025. The recovery reflects stronger domestic demand, with private consumption and government spending expanding alongside a recovery in investment. However, uneven industrial performance and lower foreign direct investment indicate that the sources of growth remain concentrated.
Real private consumption increased by 4.0%, government consumption rose 2.5% and investment grew 3.3%. Exports advanced by 4.1%, while imports increased more rapidly, at 5.2% in real terms. The figures indicate that domestic spending is providing the main support for economic activity, rather than a broad-based acceleration across industry and export-oriented production.
Household spending and fiscal measures support near-term demand
Double-digit wage growth, stronger retail sales and additional public expenditure have reinforced domestic consumption. A supplementary budget introduced further household transfers and spending, adding to the support already provided by rising earnings.
The European Commission reported that preliminary retail trade increased by 8.2% in July and 6.3% in August in real terms. It also expected pre-election fiscal measures to provide an additional boost to disposable incomes. These conditions create a favourable near-term environment for consumer-facing businesses, banks and service providers. The sustainability of that demand, however, will depend on whether income growth is accompanied by stronger employment and productive investment.
Manufacturing remains weaker than selected export sectors
Economic activity has developed unevenly across industries. Agriculture and construction recovered from weak starting points, while retail, transport, entertainment, professional services and finance contributed to growth.
Manufacturing has yet to show comparable momentum. Industrial production declined by 2.3% year on year in July and 0.5% in August, despite continued strong performance in machinery and car manufacturing. This divergence leaves Serbia with expanding export and service segments alongside weaker industrial activity overall. The performance of cars, machinery and other competitive industries has not yet translated into a broad manufacturing recovery.
Employment declines despite lower unemployment and rising wages
Labour-market indicators present another contrast. Total employment fell by 1.6% year on year in the second quarter, while the unemployment rate declined to 7.2%.
The lower unemployment rate was associated with reduced labour-force participation rather than a substantial increase in job creation. Meanwhile, wages rose by more than 11%, supported by public-sector pay policy and minimum-wage increases. Higher earnings can sustain household expenditure, but the combination of rising wages, declining employment and sluggish industrial output raises questions about productivity. A stronger recovery would require businesses to generate more output and value while expanding their workforce and absorbing higher labour costs.
External financial buffers remain strong as FDI weakens
Serbia’s external and public-finance indicators provide protection against immediate macro-financial pressures. The current-account deficit narrowed to 4.0% of GDP on a moving four-quarter basis, while foreign-exchange reserves covered approximately 6.8 months of imports in July.
Public debt remained close to 43% of GDP, further supporting the country’s near-term financial position. These indicators contrast with the weaker contribution from foreign investment.
Net foreign direct investment amounted to just 2.5% of GDP in the year to the second quarter of 2026, substantially below the levels recorded between 2021 and 2024. The gap highlights the difference between demand supported by household income and government spending, and growth driven by sustained private investment from abroad. For investors and lenders, the distinction affects how the recovery is assessed. Stronger consumption can support company revenues in the short term, but a durable expansion also depends on businesses committing capital, increasing production capacity and developing export-oriented operations.
2027 growth forecast depends on a broader investment recovery
The European Commission’s spring forecast projected 3.9% economic growth in 2027. Achieving that rate with a more balanced growth structure will depend on developments beyond another increase in consumer spending. Private capital formation, a recovery in foreign investment, infrastructure spending that improves productivity and broader manufacturing growth will be important to the outlook. Serbia will also need to extend the strength of its car, machinery and mining sectors into a wider cycle of domestic suppliers and exports.
The central issue for the economy is whether growth can remain robust as one-off transfers, election-related fiscal support and the current public-investment impulse diminish. The second-quarter rebound demonstrates that economic activity has strengthened, but the contribution of private investment, employment and industrial production will determine how resilient that expansion proves to be.
