Serbia’s economic expansion strengthened in the second quarter of 2026, with GDP rising 3.6% year on year, according to a flash estimate, following 3.2% growth in Q1. The acceleration marks a significant improvement from 2025, when quarterly economic growth remained between 1.8% and 2.2%. The first half of 2026 has therefore recorded growth above 3%, pointing to a broader recovery after last year’s weaker performance.
The latest expansion has been accompanied by stronger retail activity, continued wage growth and increased bank lending to businesses. Manufacturing has also shown relative resilience, although the electricity sector continues to weigh on overall industrial performance.
Credit and domestic demand gain importance
The composition of growth is significant for Serbia’s investment outlook. Over the past decade, the economy has relied heavily on foreign direct investment, infrastructure spending, exports and household consumption. The latest figures indicate that bank-financed domestic economic activity may be assuming a greater role as foreign investment inflows have weakened. This represents a shift from some earlier growth cycles and increases the importance of financing conditions for economic performance.
The National Bank of Serbia has kept its key policy rate at 5.75%, leaving borrowing costs well above levels seen before the inflationary period. Despite those financing conditions, corporate lending has continued to expand, showing that demand for credit has remained strong.
Lower inflation supports household purchasing power
Another factor supporting domestic activity is the sharp moderation in consumer-price growth. Annual inflation fell to 1.9% in July, improving household purchasing power and creating conditions that could support consumption during the second half of the year. The combination of stronger wages, expanding retail activity and lower inflation has reinforced domestic demand alongside the recovery in GDP growth. Economic performance remains uneven across sectors and the latest quarterly growth rate does not remove broader constraints facing the economy.
Industrial weakness and investment risks remain
Industrial output continues to show mixed trends, with manufacturing performing comparatively well while the electricity sector remains weak. At the same time, inward foreign direct investment has slowed, while the fiscal position weakened during the first half of the year compared with the corresponding period a year earlier. Serbia also continues to record sizeable merchandise-trade and primary-income deficits, highlighting external imbalances that remain part of the economy’s structural picture.
The first-half performance therefore points to faster economic growth rather than the elimination of structural constraints. Sustaining the recovery will depend on whether stronger domestic activity can continue alongside contained inflation and whether investment and productivity can increasingly complement credit and consumption as sources of economic expansion.
