Serbia entered 2026 with a macroeconomic configuration defined by three dominant forces: inflation stabilisation within the National Bank of Serbia’s target corridor, a sudden contraction in industrial production that signals emerging weakness in the real economy, and a fiscal strategy centred on high public investment tied to infrastructure and the EXPO 2027 development cycle. The first months of the year therefore present a mixed macroeconomic picture: monetary stability and strong external buffers coexist with the risk that manufacturing slowdown could weigh on growth momentum during the year.
The most significant macroeconomic development at the start of the year is the stabilisation of inflation. According to the Statistical Office of the Republic of Serbia, consumer prices in January 2026 increased by 2.4% year-on-year, while monthly inflation reached 0.3% compared with December 2025. This is a decisive shift from the inflation environment experienced during the energy shock period between 2022 and 2023, when Serbia experienced double-digit inflation driven by imported energy prices, food costs and supply chain disruptions. By early 2026, inflation has firmly returned within the National Bank of Serbia target corridor of 3% ± 1.5 percentage points, placing Serbia among the European economies where price stability has largely been restored.
The return of inflation to the target range has important implications for monetary policy. Despite the rapid disinflation, the National Bank of Serbia has maintained a cautious policy stance. In its February 2026 monetary policy meeting the central bank decided to keep the key policy rate at 5.75%, while the deposit facility remains at 4.5% and the lending facility at 7.0%. The decision reflects the bank’s assessment that although domestic inflation pressures have weakened, external uncertainties remain significant. Commodity price volatility, geopolitical tensions affecting energy markets and global financial tightening cycles continue to represent potential risks to the inflation outlook. For policymakers, maintaining restrictive interest rates slightly longer helps anchor inflation expectations and protects exchange-rate stability.
External liquidity remains one of Serbia’s strongest macroeconomic buffers in 2026. The National Bank of Serbia reported that the country’s foreign exchange reserves reached €29.3967 billion at the end of January 2026, increasing by €388.4 million compared with the previous month. This level of reserves represents coverage equivalent to 6.8 months of imports of goods and services and 167.6% of the M1 monetary aggregate, providing strong protection against external shocks. For an emerging European economy with significant trade exposure to the European Union, such a reserve position significantly reduces balance-of-payments vulnerability and strengthens the credibility of exchange-rate stability policies.
While inflation and external buffers present a stable macroeconomic picture, the real economy has begun the year with a concerning signal from the industrial sector. Industrial production in January 2026 declined by 9.1% year-on-year, one of the sharpest monthly contractions recorded in recent years. Industrial activity in Serbia is closely linked to European manufacturing cycles, particularly in the automotive, machinery, metals and electrical equipment supply chains that connect Serbian factories with production networks in Germany, Italy, Austria and Central Europe. The slowdown therefore reflects not only domestic conditions but also weaker demand from European industrial markets.
A contraction of this magnitude at the beginning of the year raises questions about the strength of Serbia’s export-oriented manufacturing sector in 2026. Industrial output plays a central role in Serbia’s economic structure, contributing significantly to exports, employment and fiscal revenues through VAT and corporate taxes. If industrial production continues to decline in subsequent months, the impact could extend beyond manufacturing and affect broader economic indicators including investment activity and government revenues. Conversely, if the January figure proves to be a temporary shock related to inventory adjustments or temporary factory shutdowns, industrial output may stabilise later in the year as European demand recovers.
Fiscal policy in 2026 is designed to counterbalance such risks by maintaining strong public investment. Serbia’s parliament adopted the 2026 national budget with revenues projected at RSD 2,414.7 billion and expenditures at RSD 2,751.7 billion, resulting in a planned fiscal deficit of RSD 337 billion, equivalent to 3% of GDP. The deficit target aligns with the fiscal discipline commitments Serbia has maintained in recent years, allowing the government to expand investment while preserving macroeconomic stability and manageable public debt dynamics.
A significant component of the 2026 fiscal strategy is capital expenditure. The budget allocates RSD 602 billion for public investment projects, covering transport infrastructure, energy systems, urban development and large national projects. Within this envelope, RSD 47.5 billion has been earmarked for preparations related to EXPO 2027, the international exhibition that will take place in Belgrade and is expected to trigger large construction and infrastructure programmes over the next two years. These investments include transport corridors, urban redevelopment and large exhibition facilities that will transform parts of the capital city and create short-term economic stimulus through construction and services.
Another notable element in the 2026 fiscal framework is the allocation of RSD 164 billion linked to potential developments surrounding the oil company NIS. The government has reserved funds related to possible strategic or ownership adjustments involving the company, reflecting the strategic importance of Serbia’s oil refining and fuel distribution sector. NIS operates the country’s largest refinery in Pančevo and plays a central role in the national energy supply chain, making any ownership or restructuring developments economically significant.
Despite the fiscal deficit and investment programme, Serbia’s public debt trajectory remains moderate by European emerging market standards. According to projections associated with Serbia’s macroeconomic programme, public debt is expected to decline to approximately 44.5% of GDP by the end of 2026, slightly below the estimated 45% level recorded in 2025. Maintaining debt below the 50% of GDP threshold is an important policy objective for Serbian authorities, particularly in an environment where many European economies are facing significantly higher debt burdens following pandemic-era spending and energy crisis interventions.
The absolute debt stock also remains manageable in nominal terms. Serbia’s Public Debt Administration reported total public debt of RSD 4,600,871,024,833 as of February 27, 2026. Debt management policy over recent years has focused on extending maturities, increasing the share of dinar-denominated borrowing and diversifying financing sources across international capital markets, multilateral institutions and domestic investors. This strategy reduces refinancing risk and protects the fiscal position from abrupt changes in global interest rates.
Taken together, Serbia’s macroeconomic position at the start of 2026 is characterised by stability in monetary and external accounts combined with uncertainty in real-sector performance. Inflation has stabilised, foreign exchange reserves remain strong and the fiscal framework maintains a controlled deficit supported by large investment spending. At the same time, the sharp decline in industrial production highlights the economy’s sensitivity to European manufacturing cycles and global demand conditions.
The next few months will therefore be critical in determining the trajectory of Serbia’s economic growth during 2026. If industrial activity stabilises and European demand improves, the combination of disinflation, strong liquidity buffers and investment spending could support moderate economic expansion. If industrial weakness persists, fiscal investment and domestic consumption will need to play a larger role in sustaining growth while policymakers balance monetary stability and economic activity.
