Serbian companies are experiencing a cost increase that has not been matched by equivalent selling-price adjustments, creating a broad squeeze on operating margins despite relatively moderate consumer inflation.
Input costs increased for 65% of companies during the first quarter of 2026. Only 32%, however, raised prices for finished products and services, while another 65% kept them unchanged. The 33-percentage-point gap between companies facing higher costs and those passing those costs to customers suggests that a large part of the pressure is being absorbed through lower margins.
The pattern helps explain the divergence between subdued headline inflation and weaker corporate sentiment. Consumer price inflation stood at 2.8% in March and remained within the National Bank of Serbia’s target range. By June, consumer prices were rising only 0.2% month on month. That stability has supported household purchasing power, but it does not mean that producer-level cost pressure has disappeared.
Companies face a wider cost base than the consumer price index captures. Electricity and fuel remain important, particularly for metals, chemicals, construction materials, transport and food processing. Imported machinery, components and intermediate goods are affected by freight charges, international commodity prices and supplier pricing. Labour costs are rising as companies compete for a limited number of drivers, welders, electricians, engineers, machine operators and construction workers.
Average net salaries increased by 11.3% in nominal terms during January-May and by 8.2% in real terms. Strong wage growth has supported consumption, but for labour-intensive companies it represents a direct increase in OPEX. The effect is particularly pronounced in textiles, tourism, logistics, construction and lower-margin manufacturing.
Corporate pricing power is constrained by several factors. Exporters often operate under annual contracts denominated in euros, with price-reset provisions that lag behind changes in input costs. Domestic manufacturers compete with imported products and cannot increase prices without risking market share. Retailers are sensitive to household purchasing power, while public-sector suppliers can be locked into procurement prices that are difficult to adjust during contract execution.
Construction companies face an additional problem. Materials, labour, transport and equipment costs can move before contract-price escalation mechanisms take effect. Contractors working under fixed-price or weakly indexed contracts may increase reported turnover while suffering deterioration in project-level gross margins. Delayed certification and payment compound the effect by raising the volume of working capital tied up in completed work.
Serbia’s relative exchange-rate stability provides some protection for euro-linked imports and debt, but it does not eliminate exposure to global commodity and supplier prices. Companies buying in dollars, renminbi or Turkish lira also face cross-currency movements that are not visible in the dinar-euro rate.
The financing environment adds another layer. Corporate investment lending continued to grow, reaching 14.5% year-on-year growth in May, while liquidity and working-capital loans increased by 11.2%. Yet banks slightly tightened corporate credit standards during the first quarter, and new lending volumes were lower than a year earlier. The stronger demand for working-capital financing is consistent with companies needing more cash to finance the same level of production.
The most exposed businesses are those combining low margins, imported inputs, long customer-payment periods and limited collateral. Textiles illustrate the problem: the sector recorded comparatively strong turnover, exports and employment, yet 42% of surveyed companies lacked sufficient resources for optimal operations. Public utilities, where 30% reported insufficient funding, face a different version of the same constraint because regulated tariffs and public-service obligations can limit cost recovery.
Higher turnover during the second quarter may offer some relief, but revenue growth will not automatically restore profitability. Companies able to renegotiate prices, shorten receivables, improve energy efficiency or substitute local inputs will defend margins more effectively. Businesses without that flexibility are likely to use additional borrowing to finance an increasingly expensive operating cycle.
