Serbia’s economy grew 3.8% year on year in the second quarter of 2026, exceeding an initial estimate of 3.6%, as strong consumer spending, services and exports helped offset weakness in industry and energy, the National Bank of Serbia said.
The revised figure brought economic growth in the first half of the year to 3.5%, strengthening expectations that domestic demand will remain an important driver of the economy during the second half of 2026.
The latest indicators, however, reveal an increasingly divided growth pattern.
Retail sales are expanding strongly, unemployment has fallen to a record low and exports continue to outperform imports, while industrial production remains almost stagnant and electricity generation is weighing on overall factory-sector performance.
Industrial production fell 2.3% year on year in July, largely because of an 8.8% decline in energy output and a 1.6% contraction in manufacturing.
Mining provided some support, with production increasing 3.0% from July 2025.
Weakness within manufacturing was relatively broad. Output declined in 15 of the sector’s 24 branches, with petroleum products and fabricated metals providing some of the largest negative contributions.
Production of refined petroleum products fell 13.0% year on year, while fabricated metal products declined 6.5%.
The automotive sector moved sharply in the opposite direction.
Motor vehicle and trailer production increased 29.6% in July, continuing to emerge as one of Serbia’s strongest manufacturing segments as new automotive investment and export-oriented capacity support production.
The divergence between automobiles and traditional manufacturing industries illustrates a broader transformation taking place in Serbian industry.
New investment in vehicles, electrical equipment and other higher-value manufacturing is expanding rapidly, but those gains are still being partly cancelled out by weaker energy production, metals and some established industrial activities.
Over the first seven months of the year, total industrial production was only 0.3% higher than in the corresponding period of 2025.
Manufacturing increased 1.3%, mining was broadly unchanged with a 0.1% decline, while energy production contracted 4.8%.
That means Serbia’s economic expansion is currently running considerably faster than its industrial sector.
The difference is being filled primarily by services and domestic consumption.
Real retail turnover increased 8.2% year on year in July, while growth during January-July reached 7.3%.
The strength of retail activity indicates that household demand remains one of the principal engines of the economy, supported by employment, wages and consumer confidence.
Labour-market data reinforce that picture.
Serbia’s unemployment rate fell to 7.2% in the second quarter, its lowest level recorded under the current labour-force survey methodology.
The employment rate stood at 50.9%.
A tighter labour market can sustain household consumption through higher employment and wage income, although continued strong demand also increases the importance of inflation and monetary conditions for the economic outlook.
Tourism provided another positive contribution.
Tourist arrivals increased 4.4% year on year in July, while overnight stays rose 1.9%.
For January-July, Serbia recorded a 6.2% increase in tourist arrivals and a 4.4% rise in overnight stays compared with the same period last year.
The figures point to continued growth in tourism activity, although the sector remains considerably smaller as an economic driver than in some neighbouring Balkan economies.
Exports continue to outperform imports
External trade data provided another positive signal.
Serbia’s merchandise exports measured in euros increased 8.9% year on year in July, while imports rose 5.0%.
Export growth was primarily driven by manufacturing and agriculture, while the increase in imports reflected stronger purchases of intermediate goods used in production.
The difference between export and import growth is important for Serbia’s external balance.
During periods of strong domestic consumption and investment, Serbian imports have often increased rapidly, widening the merchandise trade deficit and increasing financing requirements.
The current pattern is more favourable, with exports expanding faster even as domestic demand strengthens.
For January-July, Serbia exported €21.09 billion of goods, an increase of 8.8%, while imports reached €25.50 billion, up 4.4%.
That narrowed the merchandise trade deficit by more than 12% to around €4.41 billion.
The improvement suggests that Serbia’s new industrial and export capacity is beginning to generate a stronger external contribution, even though total industrial production remains weak.
Agricultural exports are also supporting the result.
The sustainability of that trend will depend partly on economic activity in the European Union, which remains Serbia’s dominant export market, as well as on the performance of new automotive and industrial projects.
Growth increasingly dependent on domestic demand
The combination of the latest indicators suggests Serbia entered the second half of 2026 with solid headline growth but an increasingly unusual sectoral composition.
A 3.8% GDP expansion is being achieved while industrial output is effectively flat for the year to date.
That places greater importance on household consumption, construction, retail, tourism and other service industries.
Such a composition can sustain relatively strong economic growth in the short term, particularly while employment remains high.
But it also creates risks.
If household demand expands considerably faster than domestic production, part of that spending will eventually translate into higher imports. That could reverse some of the recent improvement in the trade balance.
A prolonged decline in electricity production could also increase the need for energy imports, particularly during periods of high consumption or weak hydrological conditions.
Manufacturing therefore remains critical to determining whether Serbia can maintain growth without generating greater external imbalances.
The strong performance of motor vehicle production is encouraging in that respect.
Serbia has attracted substantial investment into automotive and electric-vehicle manufacturing, electrical equipment and related supply chains, potentially increasing both production capacity and export value.
However, the July data show that this expansion has not yet produced broad-based industrial growth.
Stronger base for second half
The upward revision of second-quarter GDP nevertheless gives Serbia a stronger starting point for the remainder of the year.
Growth accelerated from the first quarter, while retail activity remains robust, unemployment is at a historic low and export growth continues to exceed import growth.
The main weakness is concentrated in industry, particularly energy and several traditional manufacturing segments.
That makes the performance of the economy during the rest of 2026 increasingly dependent on whether the expanding parts of manufacturing can gain sufficient scale to complement the already strong consumer and service sectors.
For now, the data point to an economy growing faster than initially estimated but with a clear internal divide: consumption, employment and exports are providing momentum, while energy and large parts of traditional industry continue to lag.
If Serbia can combine the current strength in domestic demand with a recovery in industrial production, growth could become more broadly based during the second half of the year. If industrial weakness persists, however, the economy will remain increasingly reliant on services, construction and household spending to maintain its current pace.
