Serbia’s economy expanded 3.8% year on year in the second quarter of 2026, exceeding the initial 3.6% estimate as consumer spending, services and exports supported growth despite weaker industrial and energy output, according to the National Bank of Serbia. The revision lifted first-half economic growth to 3.5%, with domestic demand remaining an important component of activity entering the second half of the year. Recent indicators, however, show a widening gap between the performance of consumption-driven sectors and industrial production.
Industrial output remains under pressure
Industrial production declined 2.3% year on year in July, reflecting an 8.8% drop in energy output and a 1.6% contraction in manufacturing. Mining provided some offset, with production increasing 3.0% compared with July 2025.
Manufacturing weakness was widespread, with output falling in 15 of 24 branches. Refined petroleum product production decreased 13.0%, while fabricated metal products fell 6.5%.
Automotive manufacturing recorded a substantially different result. Motor vehicle and trailer production surged 29.6% in July, making the segment one of the strongest contributors to Serbian manufacturing. During January-July, total industrial production was only 0.3% higher than a year earlier. Manufacturing output increased 1.3%, while mining declined 0.1% and energy production contracted 4.8%.
Consumer activity and employment support growth
The stronger GDP performance has been accompanied by sustained domestic demand. Real retail turnover rose 8.2% year on year in July, while cumulative growth for January-July reached 7.3%. Labour-market conditions also strengthened. Serbia’s unemployment rate fell to 7.2% in the second quarter, the lowest level recorded under the current labour-force survey methodology. The employment rate stood at 50.9%.
Tourism added to economic activity, with tourist arrivals increasing 4.4% year on year in July and overnight stays rising 1.9%. For the first seven months, arrivals were up 6.2%, while overnight stays increased 4.4% from the same period of the previous year.
Exports grow faster than imports
External trade provided another source of support. Serbia’s merchandise exports, measured in euros, increased 8.9% year on year in July, compared with 5.0% growth in imports. Manufacturing and agriculture accounted for the main drivers of export growth, while higher imports were largely linked to increased purchases of intermediate goods used in production.
For January-July, Serbia exported €21.09 billion of goods, up 8.8%, while imports reached €25.50 billion, an increase of 4.4%. The merchandise trade deficit consequently narrowed by more than 12% to around €4.41 billion. The stronger export performance reflects the contribution of new industrial and export capacity, while agricultural shipments also supported trade growth. Serbia’s external performance remains linked to conditions in the European Union, its dominant export market, as well as the output of automotive and other industrial projects.
Domestic demand takes a larger role
The latest figures show an economy expanding faster than its industrial sector. While GDP grew 3.8% in the second quarter, industrial production remained only marginally above its level from a year earlier during the first seven months. Household consumption, construction, retail, tourism and other services therefore account for a growing share of the current expansion. Strong employment conditions are supporting household demand, while the continued strength of consumption and investment could also increase demand for imported goods.
Energy production remains another area of weakness. A prolonged decline in electricity generation could increase the need for energy imports during periods of high consumption or weak hydrological conditions. Manufacturing performance will therefore remain important, particularly as Serbia seeks to expand automotive, electric-vehicle, electrical-equipment and related supply-chain capacity. The 29.6% increase in motor vehicle and trailer production demonstrates the strength of the automotive segment, although July’s broader manufacturing figures show that industrial growth remains uneven.
Revised GDP provides stronger second-half starting point
The revised 3.8% second-quarter GDP growth gives Serbia a stronger starting position for the remainder of 2026. Growth accelerated from 3.2% in the first quarter, while retail activity remained strong, unemployment reached a record low under the current survey methodology and exports continued to grow faster than imports.
At the same time, the industrial sector continues to face pressure from declining energy production and weaker output across several traditional manufacturing branches. The current composition of growth leaves consumption, employment and exports providing significant momentum, while energy and parts of traditional industry continue to lag. Whether industrial production recovers will determine how broadly based Serbia’s economic expansion becomes during the remainder of 2026.
