Serbia’s economy is growing faster than previously expected as recovering investment and strong household consumption offset weaker industry, but rising energy costs, tighter financing conditions and heavier public spending are increasing the risks around the next stage of growth.
The European Bank for Reconstruction and Development raised its 2026 Serbian GDP growth forecast to 3.1% from 2.8%, while keeping its 2027 projection at 3.8%.
The upgrade makes Serbia one of the stronger performers in the Western Balkans after growth slowed sharply to 2% in 2025.
Economic activity expanded 3.2% year on year in the first quarter, before accelerating further in the second quarter. Final Serbian data put second-quarter growth at 3.8%.
The composition of that recovery is increasingly important.
Private consumption remains a major driver, supported by higher wages, pensions and household spending, while investment has begun recovering after weakness in 2025. Tourism and preparations for Expo 2027 are providing additional support.
But industry has been less convincing, creating a widening distinction between Serbia’s headline growth rate and conditions facing parts of its export manufacturing base.
That tension is becoming visible across individual companies, particularly energy-intensive exporters facing weak European demand and higher input costs.
The EBRD’s upgrade therefore does not signal that Serbia has returned to an uncomplicated high-growth cycle.
Instead, the economy is increasingly dependent on domestic consumption, public and private investment and execution of the large infrastructure pipeline.
That makes the financing environment particularly important.
The EBRD’s wider September outlook warns that borrowing conditions are tightening as inflation, fiscal deficits and increased global demand for capital push longer-term interest rates higher.
For Serbia, where a substantial share of corporate lending and project finance remains linked to euro interest rates, higher European borrowing costs can directly affect investment returns.
That matters for factories, commercial real estate, renewable energy, logistics and infrastructure projects now moving through Serbia’s investment pipeline.
Energy is another vulnerability.
Elevated international oil-product prices have already made commercial diesel imports less attractive, forcing Serbia to release fuel from mandatory reserves. Low Danube water levels have simultaneously increased transport costs and disrupted regional logistics.
These pressures can feed through the economy even without an outright energy shortage.
Manufacturers pay more for transport and energy, construction projects face higher logistics costs and exporters lose some of the cost advantage that has supported Serbia’s investment proposition.
Fiscal policy is providing another layer of support but also another source of risk.
Serbia continues to finance a large capital-investment programme covering roads, railways, energy infrastructure and Expo-related construction. Household-support measures and rising public expenditure are adding further demand.
Public debt remains manageable by recent Serbian standards, but faster spending means the quality and timing of capital expenditure will increasingly determine whether fiscal expansion creates additional productive capacity or mainly stimulates short-term demand.
The current-account position has meanwhile improved, providing some external protection.
But the sharp decline in fresh foreign direct investment inflows during 2026 means Serbia can no longer rely as heavily on FDI as the automatic engine of investment growth.
That makes domestic corporate investment, bank lending, international financial institutions and capital-market financing more important.
The EBRD’s 3.1% forecast consequently represents more than a modest statistical upgrade.
It suggests Serbia has absorbed the 2025 slowdown better than initially expected and that domestic demand and investment are compensating for weaker external conditions.
The commercial question is whether that resilience can survive a more expensive second half.
If energy and financing costs remain elevated while European industrial demand stays weak, Serbia could continue producing relatively strong headline GDP growth while exporters and energy-intensive manufacturers experience much tighter margins.
That divergence — between improving macroeconomic growth and increasingly difficult operating economics for parts of the corporate sector — is becoming the more important Serbian market story.
