Serbia entered the second half of 2026 with a stronger headline growth rate but a less convincing underlying production profile. Real gross domestic product expanded 3.2% year on year in the first quarter, accelerating from estimated growth of 2% in 2025. The National Bank of Serbia expects full-year growth of 3%, followed by a more pronounced expansion of 4.5% in 2027.
The recovery is being driven principally by domestic demand. Rising real wages, stronger household borrowing, infrastructure expenditure and investment are supporting consumption and construction-related activity. Net exports are expected to subtract from growth as imported equipment, energy, consumer products and industrial components increase alongside the investment cycle.
This structure creates a two-speed economy. Industrial production rose only 0.6% in January-May 2026, despite the stronger GDP result. Manufacturing increased 1.6%, while mining contracted 0.5% and electricity, gas, steam and air-conditioning supply fell 3.2%. Serbia is growing, but the expansion is being carried more by services, credit, consumption and capital spending than by a broad industrial upswing.
The household sector is providing the most visible demand impulse. Average net earnings reached RSD 119,504, or approximately €1,018, in January-April, while real wages increased 8.6%. Household credit grew 21.1% year on year, including a 24.2% increase in cash loans and 20.4% growth in housing loans. The combination of higher real income and easier access to finance is supporting retail demand, residential investment and service-sector activity.
Consumption-led growth is commercially attractive for banks, retailers, property developers and consumer-service companies, but it is more import-intensive than an export-led industrial recovery. Stronger domestic spending can improve corporate revenues while simultaneously widening the trade and current-account deficits. That tension is already visible in the National Bank’s expectation that the current-account deficit will approach 6% of GDP in 2026, despite a substantial improvement during the first four months.
The near-term trade figures are better than the full-year external forecast suggests. Merchandise exports increased 7.7% to €14.7 billion in January-May, while imports rose only 1% to €17.7 billion. The goods deficit narrowed 22.9% to €3 billion, and export coverage of imports improved to 83.1%. Serbia also recorded a €923 million services surplus in January-April, supported by ICT and professional services.
The apparent contradiction can be explained by timing. Export growth was strong in the first five months, while major infrastructure and investment programmes are likely to generate heavier imports as implementation accelerates. Imported machinery, electrical equipment, construction materials and energy can enlarge the external deficit even when the investment itself raises future productive capacity.
Financing flows remain the softer part of the picture. Net foreign direct investment rose 81% to €357 million in January-April, but the increase came from an exceptionally weak 2025 base. The 2026 inflow remained 79% below the comparable €1.71 billion recorded in 2024. Serbia is attracting more foreign capital than a year ago, but it has not recovered the investment intensity that characterised the earlier growth model.
Domestic credit is partly filling the gap. Corporate lending increased 12.1%, led by 15.3% growth in investment loans and an 11.1% rise in liquidity and working-capital facilities. This gives companies greater ability to fund equipment, inventories and expansion, but it also shifts more investment risk onto domestic bank balance sheets.
The banking system enters this phase from a strong position. Non-performing loans represented only 2.09% of total credit at the end of April, while foreign-exchange reserves reached €29.9 billion in May. The dinar remained stable against the euro, averaging RSD 117.3938 in the first half of the year. These buffers reduce refinancing and currency risks and support Serbia’s investment-grade standing.
Fiscal policy is providing an additional growth impulse. The consolidated budget recorded a deficit of €907.3 million in January-May, compared with €491.3 million a year earlier. Higher pensions, public-sector wages, social transfers and capital expenditure increased demand, while infrastructure investment remained central to the national development programme.
The fiscal expansion has not yet destabilised the debt ratio. Central-government debt declined to 43.7% of GDP in May, from 44.4% at the end of 2025 and 52.4% in 2022. Serbia therefore retains meaningful fiscal headroom, although the widening deficit increases the importance of project selection, procurement discipline and the productive return on public investment.
Inflation has also remained manageable. Consumer prices increased 2.9% in January-May, within the NBS target corridor, although the annual rate accelerated to 3.5% in May as petroleum-product prices rose. The reference interest rate remained at 5.75%, maintaining a positive real policy rate and limiting the risk that fiscal spending and rapid credit growth produce a broader inflationary cycle.
The largest macroeconomic uncertainty remains the future of Naftna Industrija Srbije. The company’s ownership, refinery operations and access to supply influence industrial production, energy imports, fuel prices, tax revenue and the current account. A prolonged interruption would affect far more than the petroleum sector, while a durable resolution would remove one of the principal discounts applied to Serbia’s near-term growth outlook.
External conditions are also less supportive than the domestic figures imply. European Union growth is projected at only 1.1% in 2026, while Germany, Serbia’s most important individual export market, is expected to expand 0.8%. Weak external demand limits the speed at which manufacturing and exports can take over from domestic consumption as the main growth engine.
Serbia’s sovereign position remains comparatively stable. S&P’s BBB- investment-grade rating, declining public debt and large foreign-exchange reserves support access to financing. Fitch and Moody’s have retained more cautious assessments, reflecting energy uncertainty, geopolitical exposure, external deficits and the need for stronger institutional reform. These factors will influence sovereign spreads as fiscal borrowing and infrastructure financing continue.
The 3% growth projection is achievable under a continuation of domestic demand and investment, but its composition matters. Consumption and public capital expenditure can sustain activity through 2026; a more durable acceleration towards 4.5% in 2027 requires manufacturing, energy production, private investment and export capacity to contribute more visibly. The economy has recovered its speed, while the transition towards a broader productive base remains incomplete.
