The National Bank of Serbia’s May 2026 Inflation Report presents one of the clearest warnings yet that Serbia’s macroeconomic outlook is entering a more volatile phase shaped by geopolitical energy risks, imported inflation pressures and slower global growth dynamics. At the same time, the report also highlights the relative resilience of Serbia’s banking sector, fiscal position and domestic demand structure.
The central message of the report is that Serbia remains fundamentally stable, but external shocks are increasingly becoming the dominant driver of inflation, monetary policy risk and medium-term growth uncertainty.
The report was finalized after the escalation of conflict in the Middle East and explicitly frames the global energy shock as the primary macroeconomic risk scenario for both Serbia and the wider global economy. According to the NBS, the closure of the Strait of Hormuz and attacks on regional energy infrastructure triggered sharp increases in oil prices and broader commodity volatility, feeding directly into inflation expectations and financial-market stress globally.
The NBS now expects Serbian GDP growth to slow to 3.0% in 2026, down from the previous forecast of 3.5%, before accelerating toward 4.5% in 2027 due largely to infrastructure and consumption effects linked to Expo 2027.
The revision is significant because it reflects a broader structural concern: Serbia’s growth model remains highly dependent on imported energy pricing, European external demand and investor confidence flows.
The report repeatedly stresses that higher energy costs are reducing disposable income and weakening investment sentiment. At the same time, prolonged geopolitical uncertainty is expected to weigh on industrial production and broader capital allocation decisions across emerging markets.
Inflation itself remains relatively controlled for now.
Headline inflation stood at 2.8% year-on-year in March 2026, remaining slightly below the NBS target midpoint of 3%. However, the central bank now openly acknowledges that inflation will likely move temporarily above the upper bound of the target range toward the end of 2026 and early 2027 due to rising global energy prices and unfavorable base effects.
That represents a notable shift in tone from earlier reports, where inflation normalization had appeared substantially more secure.
The inflation structure is also changing.
Food prices remain surprisingly subdued, helped by government measures and previous retail margin caps. Prices of food and non-alcoholic beverages were actually down 1.2% year-on-year in March.
Instead, the main inflationary pressure is increasingly coming from services and energy.
Core inflation averaged 4.2% in Q1 2026, driven predominantly by service-sector prices, which rose 6.3% year-on-year in March. The report explicitly links this to higher labor costs and growth in real household disposable income.
Energy prices also accelerated sharply following the Middle East shock.
Domestic petroleum product prices rose 3.5% during February and March after global oil prices surged. The NBS notes that Serbia avoided even stronger price increases only because the government temporarily reduced fuel excise duties by 20%, later revised to 25%.
This effectively confirms that fiscal policy is now acting as a direct inflation-management instrument.
The report repeatedly emphasizes coordination between monetary and fiscal authorities as critical for preventing second-round inflation effects.
Despite geopolitical volatility, the NBS kept its key policy rate unchanged at 5.75%, where it has remained since September 2024.
The central bank clearly signals caution rather than aggressive tightening.
Its position reflects a difficult balancing act. Tightening monetary policy further could suppress already slowing growth and weaken investment activity. However, allowing inflation expectations to become unanchored would risk far broader macroeconomic instability.
For now, the NBS believes inflation expectations remain relatively stable.
Financial-sector expectations for inflation one, two and three years ahead remain close to the 3% target midpoint, while corporate-sector expectations hover around 4%.
The banking sector appears comparatively resilient.
Lending growth accelerated to nearly 17% year-on-year in March, supported by working-capital and investment lending to corporates and housing and cash loans to households.
At the same time, non-performing loans remain historically low at only 2.1% of total loans.
This is particularly important because Serbia enters this new inflationary phase with a much stronger banking system than during previous energy and currency shocks.
Foreign-exchange reserves also remain robust.
The NBS reported reserves of €28.2 billion at end-April despite interventions totaling approximately €1.2 billion in FX-market sales during Q1 and April combined.
The report frames these reserves as a critical external shock absorber protecting Serbia from volatility in capital flows and exchange-rate instability.
Fiscal policy, meanwhile, is becoming increasingly expansionary.
The fiscal deficit reached 4.5% of projected GDP in Q1, above the planned annual target of 3%, driven by infrastructure investment, public wages, pensions and subsidies.
Still, public debt remains manageable at approximately 42% of GDP, well below Maastricht thresholds.
This combination — elevated spending but moderate debt — reflects Serbia’s strategic decision to prioritize growth support and infrastructure development despite worsening external conditions.
The report strongly reinforces the central role of Expo 2027 within Serbia’s economic strategy.
The NBS repeatedly references the “Leap into the Future – Serbia Expo 2027” infrastructure cycle as one of the key anchors supporting medium-term growth expectations.
That means Serbia’s macroeconomic trajectory is becoming increasingly tied to the successful execution of large-scale public investment programs.
The external account remains one of the more complex parts of the outlook.
The current-account deficit stood at only 0.8% of GDP in Q1, but the NBS expects it to widen toward approximately 6% of GDP due primarily to higher annual energy-import costs.
At the same time, goods exports rose 7.4% year-on-year, supported mainly by manufacturing and automotive-related sectors.
The automotive sector receives particularly important attention in the report, including a dedicated analysis of the Fiat Grande Panda model and its implications for Serbia’s industrial production and exports.
That focus reflects how strategically important automotive manufacturing remains for Serbia’s export structure and industrial employment base.
One of the more notable structural themes throughout the report is the increasing recognition of imported inflation transmission mechanisms.
The NBS devotes an extensive section to oil-price shock transmission through Serbia’s economy, concluding that oil-price increases have broad indirect effects across food production, chemicals, manufacturing, transportation and industrial supply chains.
The report estimates that approximately 54% of the inflationary effect from petroleum-product price increases is direct, while roughly 46% emerges indirectly through wider production-cost transmission across industrial sectors.
This is especially relevant for Serbia because the economy remains highly energy-intensive compared with many EU economies.
The NBS also explicitly warns that emerging-market economies and energy importers face the highest macroeconomic vulnerability under prolonged energy-shock scenarios.
That warning effectively places Serbia within a broader category of economies exposed to imported commodity inflation, tighter global financing conditions and slower European growth.
Still, the overall tone of the report remains relatively controlled rather than alarmist.
The NBS clearly believes Serbia retains sufficient institutional, fiscal and financial buffers to manage the current shock cycle, provided geopolitical escalation does not intensify substantially further.
At the same time, the report confirms that Serbia’s macroeconomic outlook for 2026–2027 is now fundamentally tied to three external variables: global energy prices, European demand conditions and geopolitical stability.
