Serbia’s public investment has increased to approximately 7% of GDP, but domestically owned companies have not significantly expanded their capital spending, according to an analysis by the Vienna Institute for International Economic Studies. The findings raise questions about whether infrastructure expenditure and foreign investment are generating sufficient productivity growth and strengthening domestic industry.
The study, prepared by economist, shows that Serbia’s economy grew by an average of 2.4% annually between 2012 and 2025, compared with 4.2% during 2001–2011. Domestic private investment remained close to 3% of GDP throughout the period covered by the study’s data, while foreign direct investment averaged 5.7% of GDP in 2012–2025, slightly below the earlier period’s 6.1%.
Economic Growth Trails Several Regional Markets
Serbia’s average annual growth of 2.4% was below the rates recorded in several regional economies. Albania averaged 3%, Montenegro 2.9%, Romania 2.8%, Bosnia and Herzegovina 2.6% and Croatia 2.5%. Bulgaria recorded growth broadly comparable to Serbia, while North Macedonia performed slightly below it.
Although external shocks affected the periods differently, the comparison challenges the assumption that Serbia’s investment-led model has consistently outperformed regional alternatives. Improvements in employment, wages and infrastructure have not translated into a sustained acceleration in economic growth.
Government investment increased from approximately 2–3% of GDP during 2013–2017 to around 7% annually since 2021, reaching approximately 7.2% in 2024. Major spending areas include motorways, railway modernisation, urban infrastructure and projects associated with EXPO 2027.
Public infrastructure can reduce logistics costs, improve industrial connectivity and generate business for construction companies, engineering firms and equipment suppliers. However, long-term returns depend on whether completed projects increase productivity, lower operating costs and attract additional private investment.
Infrastructure Development Remains Uneven
Among six infrastructure indicators compared with EU averages, Serbia improved its relative position only in motorway development. Its motorway network increased from approximately 34% to 50% of the EU benchmark.
Other indicators weakened relative to EU averages. Railway network length declined from 67% to 61% of the benchmark, while installed electricity generation capacity fell from 27% to 24%. Relative measures for road networks, sanitation and water supply also deteriorated. These comparisons do not necessarily indicate an absolute decline in infrastructure. Nevertheless, they highlight the need to coordinate transport investment with reliable electricity, water supply, waste management and industrial development.
Domestic Companies Remain the Weakest Link
Investment by domestically owned private businesses remained close to 3% of GDP in the study’s data series, which extends through 2023. This measure excludes foreign-owned companies and should not be confused with total private-sector investment.
Domestic firms participate in Serbia’s investment cycle through construction, logistics, subcontracting and industrial services, but their own capital expenditure has not expanded comparably with government spending. Small and medium-sized manufacturers may face barriers involving long-term financing, modern machinery, industrial premises and predictable procurement opportunities. Addressing these constraints could strengthen domestic production, increase the share of value retained in Serbia and help more companies develop independent export markets.
Foreign Investment Supports Exports but Increases Income Payments
Foreign investment has supported employment, technology transfer and export growth in automotive manufacturing, mining, metals processing and industrial components. However, income attributable to foreign direct investors increased from approximately 3% of GDP to more than 5% in 2024 and 2025.
In 2025, this income exceeded new annual FDI inflows as measured in the study. The figures include reinvested earnings as well as distributed income, meaning they should not be interpreted entirely as cash dividends transferred abroad. The policy challenge is to expand domestic supplier networks, engineering capabilities and locally controlled production. The issue has gained importance as gross FDI fell 22% to €1.73 billion during January–August 2026, according to National Bank of Serbia data, while portfolio investment inflows increased substantially.
Banks and Investment Policy Face a Productivity Challenge
Separate wiiw research published in March and July 2026 found that public investment across the Western Balkans is generally associated with higher private investment. The results suggest that infrastructure can stimulate business capital formation when projects address genuine constraints and create opportunities for productive activity.
For Serbia, project selection, implementation and the institutional environment may be as important as total expenditure. Transparent cost-benefit assessments, realistic demand forecasts and long-term operating-cost analysis can help determine whether infrastructure delivers lasting economic benefits. Commercial banks could support domestic industrial investment through long-term investment loans, equipment leasing, receivables finance, export guarantees and energy-efficiency financing. Development-finance institutions can also help mobilise lending through guarantees and risk-sharing arrangements. However, companies still need credible investment plans, reliable financial reporting, technical expertise and access to markets.
Investment incentives could likewise place greater emphasis on domestic procurement, technology transfer, workforce development and local supplier participation. Projects that generate exports and purchase from Serbian businesses may retain more value within the economy than those heavily dependent on imported inputs.
The infrastructure programme associated with EXPO 2027 is expected to support construction and demand for materials and services. Its longer-term economic contribution will depend on infrastructure utilisation, private investment growth, industrial productivity and the ability of completed assets to generate continuing benefits after construction slows. Serbia has attracted substantial foreign investment and expanded its motorway network, but the wiiw analysis highlights the need to strengthen domestic capital formation and productivity so that economic growth becomes less dependent on public construction spending and foreign-owned manufacturing.
