Serbia experienced strong economic growth in 2024, driven by classic sectors such as trade, transport, banking and newer services like IT and telecommunications, alongside solid industrial performance. Domestic demand was the key driver of growth, while exports saw modest increases. However, according to the Quarterly Monitor published by the Faculty of Economics and the Fund for the Development of Economic Science (FREN), this growth model, although suitable for times of crisis, is not sustainable in the long term.
At the start of 2025, there are signs of an economic slowdown, with GDP growth for 2025 expected to fall below four percent. The analysis, authored by Milojko Arsić, a professor at the Faculty of Economics, notes that it’s challenging to predict exact growth figures at this time. Several factors will influence growth, including the resolution of the political crisis in Serbia, potential developments in the ongoing customs war between major economies, and possible sanctions on the oil company NIS, which could further hinder economic progress.
In terms of employment, registered jobs increased by 0.5 percent, while total employment rose by 1.8 percent. The unemployment rate decreased to 8.6 percent, a 0.9 percent improvement compared to the previous year. However, wages saw a real increase of 9.1 percent, while productivity grew by only 3.3 percent, leading to a 5.6 percent rise in unit labor costs. This puts pressure on Serbia’s international competitiveness and contributes to inflationary pressures.
Foreign companies in low-productivity sectors have started closing, a trend likely to continue. To achieve sustainable high development, Serbia will need to focus on restructuring its economy toward more productive industries, the Quarterly Monitor suggests.
Serbia’s external deficits widened significantly in 2024, even though foreign investment inflows remained high. The current account deficit reached 6.3 percent of GDP, with expectations of further growth in the second half of the year. The widening deficit is driven by increased foreign trade deficits, higher outflows of funds for dividends and interest, and a decline in remittances. Notably, expenses related to interest and dividends are expected to surpass remittances and foreign pensions in the coming years.
The foreign trade deficit was influenced by stronger domestic demand, rising unit labor costs, and the appreciating dinar. While favorable global product prices helped offset some of the deficit, the overall situation remains concerning. While foreign investments remained strong, the increasing outflow of funds for dividends continues to be a challenge.
Inflation in the latter half of 2024 and the first months of 2025 hovered around the upper limit of the target range. The high inflation is attributed to rising domestic demand, labor costs, and administratively regulated price increases, while imported goods became less expensive. The rise in service prices and persistent high base inflation indicate that domestic inflation factors are dominant, and this, combined with a fixed exchange rate, is bringing Serbian prices closer to European levels.
In terms of public finances, Serbia recorded a moderately high fiscal deficit of 2.2 percent of GDP in 2024, below the EU and Central and Eastern European averages. However, the Quarterly Monitor predicts that the budget deficit in 2025 will exceed the planned 3 percent due to increased government spending, lower revenues, and slower economic growth.
Regarding monetary policy, the National Bank of Serbia (NBS) has kept interest rates high since September 2024 in response to inflation and fiscal pressures. To maintain the dinar exchange rate, the NBS bought 2.7 billion euros last year and sold 745 million euros in the first two months of 2025.
In conclusion, while Serbia experienced strong growth in 2024, challenges loom in 2025, with a likely slowdown in economic activity, rising deficits, and inflationary pressures. How these issues are addressed will determine the country’s economic trajectory in the coming years.
