Serbia entered 2026 with a stronger headline growth figure than many European economies, but the latest reading also shows why the country’s macroeconomic picture is becoming harder to read. Real GDP expanded by 3.2% year on year in the first quarter, a solid result in a difficult regional and external environment. Yet the composition of that growth points to an economy still leaning heavily on consumption, services and public-sector support, while investment, industry and external financing are sending more cautious signals.
The new issue of Kvartalni monitor, prepared by economists from the Faculty of Economics in Belgrade and FREN, describes the first-quarter result as solid under current conditions. Serbia’s 3.2% annual expansion was among the faster growth rates in Europe, but the authors warn that one quarter cannot define the underlying trajectory of the economy. That caution is important. Growth has accelerated on paper, but its internal structure is uneven.
The main contributors on the production side were agriculture and services. Industry stagnated, while construction recorded a decline. From the demand side, growth was supported by private consumption, government consumption and exports, while investment was broadly stagnant. This mix is not negative by itself, but it shows that the stronger first-quarter figure was not driven by a broad-based investment cycle. Serbia is still waiting for a more durable expansion in manufacturing capacity, infrastructure execution and private-sector capital formation.
The investment signal is the most sensitive part of the report. In the first quarter, Serbia recorded a foreign-capital outflow of €866mn, reflecting a fall in foreign direct investment of around 40%, outflows from trade credits and withdrawal of portfolio investment. For an economy that has relied heavily on FDI as a source of growth, export capacity, employment and external-balance financing, this is more than a technical quarterly movement. A sustained slowdown in foreign capital inflows would weaken the investment base, reduce future productivity growth and make the current-account position more vulnerable.
This matters because Serbia’s growth model over the past decade has been built around infrastructure spending, foreign manufacturing investment, services expansion and public-sector stability. The model has delivered visible results, but it also depends on continuous capital inflow. When investment stagnates and foreign capital leaves, consumption-led growth can still produce a positive GDP number, but the medium-term quality of that growth becomes less convincing.
Inflation is the second warning line. Since March, inflation has slightly accelerated, driven by higher energy prices and the removal of administrative price controls. Government measures, including lower excise duties, commodity-reserve interventions and retail energy-price controls, softened the immediate impact of global energy-price increases. But the mild acceleration in core inflation, together with stronger services prices since the start of the year, suggests that price pressures are not purely imported or temporary.
This is where monetary policy remains constrained. The National Bank of Serbia has kept the reference rate at 5.75%, with the deposit facility at 4.5% and the lending facility at 7.0%. The decision reflects a cautious stance: inflation is still broadly within the central bank’s projected path, but energy prices, services inflation and wage dynamics leave little room for aggressive easing. The dinar also remains a policy priority, with the central bank continuing foreign-exchange sales to prevent depreciation pressure.
The wage picture is mixed. Real wages continued to grow strongly in the first quarter, both in the public and private sectors. That supports household consumption and helps explain the resilience of domestic demand. But the labour market itself has shown mild deterioration: employment is falling, unemployment is stagnating and labour costs expressed in euros are rising somewhat faster. For companies exposed to export markets, especially manufacturing suppliers, higher euro-denominated labour costs can gradually erode competitiveness unless productivity improves at the same pace.
Fiscal policy has not yet become a macroeconomic destabiliser, according to the analysis, but the risks are visible. Serbia’s public-debt ratio remains relatively low by European standards, yet interest costs are high. The report also points to persistent problems in the grey economy, poor prioritisation of spending and inefficient use of public funds. The additional uncertainty comes from announced pre-election spending, where the scale and fiscal effect remain unclear.
That is the political-economy layer behind the data. Serbia can still produce around 3% growth in 2026, especially if industry recovers and construction receives support from Expo-related works. Stellantis is expected to help manufacturing in the coming quarters, while Expo infrastructure could lift construction activity after the first-quarter decline. But these drivers are not risk-free. Industrial recovery depends on export markets, supply chains and demand from Europe, while construction growth tied to public projects depends on execution quality, cost control and financing discipline.
The external environment is also less forgiving than it was during the strongest phase of Serbia’s FDI-led expansion. Energy prices have become more volatile, European demand remains uneven, financing costs are still high, and investors are more selective. Serbia’s growth story therefore depends not only on domestic consumption, but on whether the country can restart stronger investment inflows and turn planned infrastructure and industrial projects into productive assets rather than fiscal pressure.
The first-quarter data should not be read as a weak result. On the contrary, 3.2% growth is respectable, especially compared with slower-moving European economies. The issue is that the headline number is doing more work than it should. Beneath it, investment is soft, foreign capital has moved out, industry has yet to regain momentum, inflation has picked up slightly and the labour market is not as strong as wage growth suggests.
Serbia’s macroeconomic position remains manageable, but the room for policy error is narrowing. Growth based on consumption and public spending can stabilise the cycle, but long-term competitiveness still depends on investment, productivity, export capacity and disciplined fiscal choices. The first quarter gave Serbia a solid statistical start to the year. The harder test will come in the following quarters, when the economy must show that growth is not only resilient, but better balanced and less dependent on short-term support.
