Serbia’s economy expanded by a real 3.6 per cent in the second quarter of 2026 compared with the same period last year, strengthening the prospect that full-year growth could reach the 3 per cent level projected by the National Bank of Serbia despite weak industrial momentum and a more difficult external environment.
The flash estimate from the Statistical Office of the Republic of Serbia represents an acceleration from the revised 3.2 per cent annual growth recorded in the first quarter. It also marks a considerable improvement from the second quarter of 2025, when economic growth was approximately 2.1 per cent.
Taken together, the first two quarterly readings suggest that Serbia’s economy expanded by roughly 3.4 per cent during the first half of 2026, although the precise half-year calculation will depend on quarterly weights and revisions. A detailed breakdown by production sectors and expenditure components will be published on August 31, providing a clearer view of the contributions from household consumption, government spending, investment, inventories and net exports.
The acceleration is stronger than many forecasts formulated earlier in the year. The National Bank of Serbia expects GDP growth of 3 per cent in 2026, while the International Monetary Fund projects approximately 2.8 per cent and the World Bank around 2.7 per cent. The Vienna Institute for International Economic Studies has taken a considerably more cautious position, forecasting growth of only 2 per cent.
The second-quarter estimate does not by itself settle that debate. Year-on-year growth can be influenced by the relatively weak comparison base from 2025, while the absence of seasonally adjusted quarterly data makes it difficult to determine the strength of the economy’s immediate momentum. Serbia recorded only 0.2 per cent quarter-on-quarter growth in the first three months of 2026, indicating that the annual increase partly reflected weak activity a year earlier.
Nevertheless, the latest data offer evidence that growth became more broadly established during the spring. Household demand remained one of the most visible supports. Retail trade increased by 7 per cent in real terms during the first six months, while June alone recorded real annual growth of 4.3 per cent. Wage increases, pension adjustments and government expenditure continued to support consumption, even as elevated borrowing costs limited some credit-financed purchases and investment decisions.
Inflation also became less restrictive. Annual consumer-price growth slowed to 2.7 per cent in June, down from 3.5 per cent in May, placing inflation below the National Bank of Serbia’s central target of 3 per cent and comfortably within its tolerance band of 1.5 to 4.5 per cent.
Lower inflation strengthens real household income and gives consumers greater purchasing power from nominal wage increases. Average net earnings reached RSD118,398 in May, while real net wages during the first five months were 8.2 per cent higher than in the corresponding period of 2025. Median net earnings remained considerably lower at RSD93,277, showing that aggregate wage growth is still unevenly distributed across the labour market.
The combination of rising real wages and moderating inflation helps explain the continued strength of retail activity. It also suggests that domestic consumption probably made a significant contribution to second-quarter GDP growth. The detailed national accounts will show whether that contribution was accompanied by stronger private investment or was primarily sustained by household and government spending.
Industrial data are less decisive. Industrial production increased by only 0.8 per cent year on year in June, after rising 0.3 per cent in May and 3.4 per cent in April. The manufacturing sector benefited from the recovery of refinery activity and stronger output in selected automotive, electrical-equipment, mining and metals segments, but the monthly figures do not indicate a broad industrial boom.
The weakness is important because manufacturing remains central to Serbia’s export model. Strong headline GDP growth driven mainly by consumption and government capital expenditure would have different implications from growth led by productivity, industrial investment and higher-value exports. The first model can support activity in the short term but may widen the fiscal and external deficits; the second is more likely to strengthen the country’s long-term growth capacity and sovereign credit profile.
Foreign trade data provide a more encouraging signal. Serbia’s merchandise exports rose by 8.3 per cent to €17.97bn during the first half, while imports increased by 3.7 per cent to €21.68bn. The trade deficit narrowed by 14.1 per cent to €3.71bn, and export coverage of imports improved from 79.4 per cent to 82.9 per cent.
Exports therefore grew faster than domestic import demand over the six-month period, reducing the negative contribution that merchandise trade might otherwise have made to GDP. Automotive products, wiring systems, copper ore, refined copper, electrical equipment and vehicle components were among the most important industrial exports.
June introduced a less comfortable pattern. Exports increased by 9 per cent year on year to €3.21bn, but imports rose by 17.3 per cent to almost €3.99bn. Seasonally adjusted imports increased by 12.7 per cent compared with May, far faster than the 4 per cent rise in exports.
Part of the import acceleration may reflect stronger investment and production. Imports of machinery, components and intermediate products can precede higher industrial output. But Serbia also remains heavily dependent on imported crude oil, natural gas and, during periods of domestic generation shortfall, electricity. Higher energy imports reduce the growth contribution from net exports and expose the economy to commodity-price and geopolitical shocks.
Construction represents another uncertainty. The sector contracted sharply during parts of 2025 and remained weak at the beginning of 2026, with the value of completed construction work falling by 5 per cent in real terms during the first quarter. At the same time, the government’s infrastructure pipeline, transport projects and preparations for Expo 2027 are creating a substantial public-investment cycle.
The 2026 state budget provides for capital expenditure of approximately RSD602bn, equivalent to more than €5bn at prevailing exchange rates. Spending is directed towards roads, railways, utility infrastructure, energy projects, urban development and Expo-related facilities. The investment programme can support construction, engineering, materials production and domestic services, particularly during the second half of 2026 and throughout 2027.
The economic return will depend on project selection and execution. Transport and energy infrastructure that reduces logistics costs, strengthens electricity security or connects industrial zones can raise potential growth beyond the construction phase. Projects with limited commercial use after Expo 2027 would add to near-term GDP while providing a weaker long-term fiscal return.
The labour-market picture also warrants attention. Registered employment declined in several productive sectors during the second quarter. Manufacturing employment fell by 17,422 people, while mining and quarrying lost 1,134 positions. Wholesale and retail trade, including motor-vehicle repair, recorded a reduction of 4,276 employees.
These declines do not necessarily contradict GDP growth. Output can rise while employment falls because of productivity improvements, automation, corporate restructuring or changes in formal registration. Yet a prolonged divergence between production and employment would weaken the household-income channel that has supported consumption.
Serbia also faces a structural labour constraint. Demographic decline, outward migration and shortages of qualified technical personnel are increasing costs for manufacturers, engineering companies, construction contractors and service businesses. Imported labour can ease immediate shortages, but sustainable growth requires higher domestic labour participation, more technical education and productivity investment.
For fiscal policy, the 3.6 per cent quarterly result is favourable. Faster real growth supports value-added tax receipts, payroll contributions and corporate revenues, while also helping stabilise public debt as a share of GDP. Serbia’s 2026 budget targets a deficit of up to 3 per cent of GDP, consistent with the ceiling agreed under the IMF Policy Coordination Instrument.
The growth reading provides some protection for that target, but expenditure pressures remain substantial. Capital spending, public wages, pensions, energy-related interventions and possible obligations connected with state-owned enterprises could weaken the fiscal position. Measures introduced to cushion households and companies from energy-price shocks also need to remain temporary if Serbia is to preserve the credibility of its fiscal framework.
The sovereign-credit implications are moderately positive. S&P Global Ratings assigns Serbia a BBB- rating with a stable outlook, placing the country at the lowest level of investment grade. Fitch rates Serbia BB+ with a positive outlook, one step below investment grade, while Moody’s assigns Ba2 with a stable outlook.
Stronger growth, contained inflation and a narrowing trade deficit support the case for lower sovereign risk. A sustained improvement could help Serbia reduce the premium demanded by investors on government bonds and broaden access to institutional capital. That effect depends on fiscal discipline, policy predictability, external financing conditions and the management of risks connected with energy companies and large public-investment projects.
The National Bank of Serbia has kept its key policy rate at 5.75 per cent, unchanged since September 2024. With inflation falling to 2.7 per cent, the real policy rate has become more restrictive. This creates room for eventual monetary easing, but the central bank is likely to remain cautious because energy prices, global interest rates and geopolitical risks could revive inflation.
Lower interest rates would improve financing conditions for Serbian companies and households, particularly in dinar-denominated lending. They would also reduce the cost of working capital for exporters and domestic suppliers. Premature easing, however, could weaken the dinar or stimulate imports before external risks have subsided.
The principal test for the second half will be the balance between domestic demand and productive capacity. Retail spending and public investment are supporting activity, while exports are growing faster than imports over the half-year period. Industrial production remains comparatively soft, employment has weakened in manufacturing and June’s import surge shows that stronger demand can quickly spill into the external account.
Growth of 3.6 per cent gives Serbia a stronger platform heading into the second half of 2026 and places the official 3 per cent annual projection within reach. The quality of that growth will become clearer when the August national accounts reveal whether the acceleration came from manufacturing and investment or relied more heavily on consumption, inventories and government expenditure. Serbia’s sovereign and corporate risk profile will be shaped less by a single quarterly figure than by the durability of the export expansion, the commercial return on public capital spending and the ability to keep energy dependence from reopening external and fiscal pressures.
