Serbia’s current-account deficit narrowed to 4.0% of GDP in the second quarter of 2026, compared with 4.7% in 2025, as stronger exports and lower gas import prices improved the country’s external trade position. Increased dividend payments to foreign investors and slower foreign direct investment (FDI) inflows are changing the balance between external earnings and new capital entering the economy.
The improvement in the goods and services balance during the first seven months was supported by automotive production, mining exports and machinery, alongside lower gas import prices than a year earlier. Meanwhile, net FDI amounted to just 2.5% of GDP in the year to the second quarter, reducing the contribution of new and reinvested foreign capital to Serbia’s external financing.
Automotive and mining exports support trade performance
Stronger car production and higher copper prices contributed to export growth, while machinery also remained a significant source of export receipts. These sectors helped improve the external balance and reduce Serbia’s need for financing from abroad.
Foreign-exchange reserves remained robust, covering approximately 6.8 months of imports in July. Combined with a smaller current-account deficit and contained public debt, the reserves provide support for Serbia’s external financial position.
The concentration of export gains in automotive manufacturing and mining leaves the durability of the improvement partly dependent on the performance of these sectors. While favourable commodity prices and stronger production can quickly lift export receipts, a wider manufacturing and services export base would provide greater diversification. The European Commission observed that manufacturing activity remained sluggish despite stronger performance in car production and mining, highlighting the difference between expanding export volumes in selected industries and broader industrial growth.
Dividend payments widen Serbia’s primary-income deficit
The improvement in trade was accompanied by a deterioration in the income account. Serbia’s primary-income deficit widened by 0.7 percentage points of GDP, largely because of dividend outflows, while the secondary-income surplus increased by 0.5 percentage points of GDP. The secondary-income account includes remittances.
The rise in dividend payments reflects the development of Serbia’s foreign-owned corporate sector over the previous decade. As foreign-invested businesses mature and generate profits, a larger share of their earnings can be distributed to shareholders abroad rather than retained for domestic investment. Dividend repatriation is a normal return on invested capital. The external financing challenge becomes more pronounced when these payments increase while fresh foreign investment declines, leaving a smaller inflow of capital to offset earnings transferred overseas.
Slower FDI limits the offset to profit outflows
Net FDI reached only 2.5% of GDP in the 12 months to the second quarter, well below the levels recorded during 2021–2024. The slowdown means that new and reinvested foreign capital is providing less support against the growing outflow of income generated by foreign-owned companies.
The share of profits retained and reinvested in Serbia is consequently becoming an important factor in assessing the contribution of foreign investment to domestic capital formation. Foreign-owned exporters that use retained earnings to expand production capacity can increase future output and strengthen the external position.
By contrast, companies that distribute most of their profits abroad may remain productive and profitable while contributing less to additional investment in Serbia. The balance between reinvestment and dividend distribution will influence whether the current-account improvement can be sustained.
External stability depends on renewed productive investment
Serbia’s external deficit remains manageable, supported by strong foreign-exchange reserves, contained public debt and a narrower current-account gap. Nevertheless, maintaining that position will depend partly on whether stronger export performance is accompanied by renewed investment in productive capacity.
A recovery in FDI and a higher rate of profit reinvestment would help Serbia sustain a moderate current-account deficit while expanding its industrial base. Without stronger capital inflows, dividend payments could account for a growing share of the external financing burden, even as export sectors continue to perform well. The relationship between export growth, reinvested earnings and dividend outflows therefore remains central to Serbia’s external accounts as the country seeks to broaden manufacturing performance beyond its strongest automotive and mining industries.
