The Serbian economy entered 2026 in a complex macroeconomic position defined by modest growth, structural shifts in its industrial base, and growing sensitivity to geopolitical and external market developments. According to the latest macroeconomic assessment published in the MAT – Macroeconomic Analyses and Trends, February 2026, the country maintained economic expansion during 2025, but the pace of growth slowed significantly compared with previous years. Real GDP growth averaged approximately 2% in 2025, while the final quarter of the year recorded a year-on-year increase of 2.2%.
Although these figures confirm that Serbia avoided recessionary pressures affecting parts of Europe’s manufacturing sector, they also reveal a weakening growth trajectory relative to the rapid expansion seen in the years following the pandemic recovery.
The most visible sign of this slowdown emerged in industrial production, which grew only 0.9% during 2025. The modest increase reflected a combination of domestic disruptions and deteriorating conditions in European manufacturing markets. Industrial activity also weakened toward the end of the year, with total industrial production in December 2025 declining by 5.7% year-on-year.
The manufacturing sector bore the brunt of the decline. Production in manufacturing industries fell 8.3% in December, offsetting gains in other sectors such as mining and energy supply.
Mining activity remained one of the more stable contributors to Serbia’s industrial output. Production in the mining sector increased 4.7% during 2025, while electricity and energy supply showed only marginal growth of 0.7% in December. Nevertheless, these improvements were not sufficient to compensate for the contraction in manufacturing activity, which remains the backbone of Serbia’s industrial economy.
A closer look at the industrial structure reveals how narrow the growth base has become. Out of 29 industrial branches, only 12 recorded growth in physical production volume during 2025, representing 35.7% of total industrial production. This indicates that much of Serbia’s industrial sector is operating under stagnation or contraction conditions.
One of the most important underlying factors shaping these developments is the broader slowdown in European manufacturing. Serbia’s industrial system is deeply integrated into European supply chains, particularly those centered on Germany and Italy. As a result, fluctuations in EU industrial activity have a direct impact on Serbian factories, especially those producing intermediate components for export.
The MAT analysis emphasizes that the European industrial sector is currently experiencing what appears to be a structural rather than cyclical crisis. Key indicators support this view. The manufacturing Purchasing Managers’ Index remained below the threshold separating expansion from contraction. In January 2026, the PMI stood at 49.5 in the European Union, 49.1 in Germany, and 48.1 in Italy, reflecting persistent weakness in industrial demand.
Germany’s economic situation is particularly important for Serbia because the country represents the largest trading partner and a central node in European industrial supply networks. The slowdown in German manufacturing has therefore propagated throughout supplier industries across Central and Eastern Europe.
German unemployment has also increased, reaching 6.6%, which represents the highest level in more than a decade. This rise in unemployment reduces consumer demand and investment confidence across the European industrial ecosystem, amplifying the negative effects on countries such as Serbia that rely heavily on export-oriented manufacturing.
Despite these structural headwinds, several sectors within Serbia’s industrial base continued to demonstrate resilience and growth potential. The most prominent example is the automotive industry, which emerged as the primary driver of industrial expansion in 2025.
The launch of production of the electric Fiat Grande Panda model at the factory in Kragujevac at the beginning of 2025 transformed the performance of the automotive sector. Production levels in the sector rose rapidly throughout the year, with the overall output of motor vehicles and trailers reaching levels approximately 60% higher than the average recorded in 2024.
This expansion had a significant impact on manufacturing output and export performance. The automotive sector alone contributed 1.8 percentage points to the total 1.1% growth of the manufacturing sector during 2025.
Exports from the automotive industry reached €4.057 billion, making it the single largest export sector in the country. Automotive products accounted for 12.3% of Serbia’s total exports, underscoring the sector’s central role in the country’s external trade structure.
Germany remained the most important export destination for Serbian automotive products, accounting for 30.5% of total exports in the sector, followed by Italy with 14% and Hungary with 9.5%.
The expansion of electric vehicle production in Kragujevac therefore represents more than a sectoral success story. It also illustrates Serbia’s growing integration into Europe’s electric mobility transition and highlights the country’s potential role as a manufacturing hub within the evolving EV supply chain.
However, this success also reveals a structural risk. Serbia’s export growth has become increasingly concentrated in a limited number of industrial sectors. Automotive production, rubber and plastics manufacturing, and machinery production together account for a large share of export expansion.
This concentration makes the economy vulnerable to sector-specific shocks or shifts in demand within the European market.
In addition to the automotive sector, the rubber and plastics industry also recorded strong growth in 2025. Production in this sector increased 16.6% during the year, while exports expanded by €405.5 million.
The industry generated a substantial trade surplus of €1.098 billion, confirming its importance as a supplier of industrial components to European manufacturing chains.
Nevertheless, even this sector faced geopolitical challenges. In December 2025, the United States imposed a ban on imports of tires produced at the Linglong factory in Zrenjanin due to concerns related to labor conditions in the production process. This decision could potentially affect export performance in the coming years.
Energy production also played an important role in shaping Serbia’s industrial dynamics during 2025. Hydropower generation declined sharply during the first half of the year due to drought conditions across the region.
Total hydropower production fell 18.5% during 2025, reflecting reduced water levels in reservoirs and river systems.
However, improved weather conditions toward the end of the year allowed partial recovery. Hydropower generation increased 16.9% year-on-year in November and 8.1% in December, while production in January 2026 rose by 11.1% compared with the same month of the previous year.
These fluctuations highlight the growing importance of weather conditions and climate variability in determining electricity production in Southeast Europe.
Yet the most dramatic disruption to Serbia’s industrial sector occurred in the oil refining industry. Production in the category “coke and petroleum products” collapsed by 94.3% in December 2025, representing the single largest negative contribution to industrial output during the year.
The production index for this sector relative to the 2024 average fell to only 6.5, reflecting near-complete shutdown of refining operations.
This collapse was primarily linked to uncertainty surrounding the Pančevo refinery operated by Naftna Industrija Srbije (NIS). The company’s ownership structure, in which Gazprom Neft holds the majority stake, exposed the refinery to geopolitical tensions and potential sanctions affecting Russian energy companies.
The disruption of refining operations had significant spillover effects on the broader manufacturing sector, demonstrating how energy geopolitics can directly influence industrial production in small open economies.
Beyond industrial production, Serbia’s external trade continued to expand in 2025 despite global uncertainties.
Total foreign trade turnover reached €74.927 billion, representing an increase of 7.7% compared with the previous year.
Exports totaled €33.068 billion, while imports reached €41.859 billion, resulting in a trade deficit of €8.791 billion.
Manufacturing accounted for 87.6% of total exports, highlighting the central role of industrial production in Serbia’s export model.
The coverage of imports by exports improved slightly during the year, reaching 79%, compared with 78.1% in 2024.
Another notable milestone was the increase in Serbia’s monthly export capacity. The long-term trend value of exports exceeded €2.8 billion per month for the first time in December 2025, indicating gradual expansion of the country’s export potential.
Trade relations remain strongly concentrated within Europe. Countries of the European Union accounted for 63.8% of Serbia’s total trade exchange.
Germany maintained its position as Serbia’s largest trading partner with 13.3% of total trade, followed by China, Italy, and Hungary.
Germany is also the largest export market for Serbian goods, accounting for 15.5% of total exports.
Key Serbian export products to Germany include rotating electrical machines valued at €686 million and electricity distribution equipment worth €596 million.
These figures confirm Serbia’s deep integration into the European industrial ecosystem and underline the country’s reliance on EU demand for its export growth.
Taken together, the developments observed during 2025 reveal an economy undergoing gradual structural transformation. Serbia continues to expand its manufacturing capacity and strengthen its position in European supply chains, particularly in automotive production.
At the same time, the slowdown in industrial growth, disruptions in the energy sector, and concentration of export activity in a limited number of industries highlight the vulnerabilities inherent in the current economic model.
The coming years will therefore test whether Serbia can diversify its industrial base, strengthen domestic energy security, and move further up the technological value chain within European manufacturing networks.
