Serbia’s economy is projected to grow by 3.1% in 2026 and 3.7% in 2027, following estimated growth of 2% in 2025, but weak investment, low manufacturing contributions and problems at state-owned companies continue to weigh on its long-term competitiveness, according to the World Bank’s October assessment.
The recovery is being driven mainly by household consumption, higher wages, expanding credit and stronger exports. The World Bank expects consumption to remain the principal growth engine, with investment making a smaller contribution.
Automotive exports support industrial recovery
The recovery in automotive manufacturing, including electric-vehicle production at Stellantis’s Serbian operations, has strengthened exports. Vehicle production increased by nearly one-third in January–July compared with the same period a year earlier, according to the World Bank’s regional update. Higher exports of vehicles and metals, alongside the reopening of petroleum refining operations, have also supported industrial activity.
Nevertheless, manufacturing has made only a marginal positive contribution to overall growth, while services have been the main source of economic expansion. Serbia’s reliance on a limited number of major exporters also exposes industrial performance to European demand, supply-chain conditions and production decisions by international manufacturers.
The World Bank also reports that foreign direct investment remained weak in the first half of 2026. Serbia’s ability to attract new manufacturing projects increasingly depends on reliable electricity, grid capacity, logistics, workforce skills, regulatory predictability and environmental compliance, in addition to investment incentives.
For exporters supplying EU markets, renewable electricity procurement, emissions reporting and compliance with the Carbon Border Adjustment Mechanism (CBAM) are becoming increasingly relevant.
Higher wages increase pressure on productivity
Nominal wages rose by 11.5% in the first half of 2026, supporting household spending but increasing costs for employers. Maintaining manufacturing competitiveness will require productivity improvements through automation, digitalisation, equipment upgrades, maintenance and workforce training.
Unemployment declined to 7.2% in the second quarter of 2026, although the World Bank notes that some of the reduction reflected people leaving the labour force rather than finding jobs. Youth unemployment remained around 22%, highlighting the gap between available workers and the skills required by employers.
The shortage of technicians, engineers, electricians and automation specialists could increase recruitment costs and constrain industrial expansion. Technical education, retraining and closer cooperation between companies and educational institutions remain important to addressing these mismatches.
Public spending pushes deficit above earlier target
Central government revenue increased by 11.8% nominally in the first half of 2026, while expenditure grew by 13.3%, reflecting higher spending on wages, pensions and capital investment.
The supplementary budget sets the 2026 central government deficit target at 3.5% of GDP, up from the previous target of 2.9%. Reduced fuel excise duties, introduced to limit the impact of higher energy prices, also affected revenue. The World Bank’s assessment raises questions about the returns generated by public investment. Transport, energy and environmental projects can improve industrial competitiveness, but delays, weak project appraisal and cost overruns may increase public liabilities without delivering expected benefits.
State-owned companies remain a fiscal and industrial concern
The World Bank identifies the performance of major state-owned enterprises as a significant risk to Serbia’s medium-term outlook.Electricity utility EPS faces ageing generation assets, investment requirements, electricity import exposure and the integration of renewable capacity. Its financial performance depends on generation availability, maintenance, procurement costs and the delivery of capital projects.
Gas company Srbijagas faces challenges involving import arrangements, infrastructure spending and regulated market obligations. Meanwhile, uncertainty surrounding the ownership of oil company NIS creates additional risks for refinery operations and petroleum supply.
Financial difficulties at public enterprises can affect government spending, borrowing requirements and the cost of energy supplied to private industry. The World Bank therefore highlights the importance of stronger corporate governance, financial transparency and professional management.
Credit growth and investment quality
Expanding bank lending has supported household consumption, while Serbia’s banking system benefits from growing deposits and generally stable financial conditions. The allocation of credit will influence whether financial resources contribute to productive capacity.
Corporate financing can support machinery purchases, technology upgrades, energy efficiency and industrial expansion, while consumer and housing loans primarily stimulate domestic demand. Smaller manufacturers and innovative businesses may also need broader access to long-term funding through capital markets and alternative financing channels.
The World Bank expects Serbia to maintain medium-term annual growth of approximately 3%–4%, but identifies productivity, private investment, labour-force participation and state-enterprise reform as important conditions for stronger economic performance. The country’s longer-term competitiveness will depend on whether higher-value manufacturing, domestic supplier development and more efficient infrastructure investment can expand alongside household spending and public expenditure.
