Key questions still unanswered

Serbia in late 2025 is pulled back by a mix of political uncertainty and an energy crisis it didn’t choose. The economy itself is growing, yes — about 2% this year — but not because businesses are confidently investing or foreign companies are rushing in. In fact, private investment and FDI have cooled noticeably, as if everyone is waiting for clarity before taking the next step. Household spending and public investment are keeping things afloat. We expect the pace to pick up a bit once global conditions improve and local energy crisis resolves.

At the same time, inflation which had been a persistent headache suddenly calmed down. Not organically, though. The government stepped in with a decree capping profit margins on essential goods. It worked, at least in the short term, pushing inflation down to 2.8% by October. But that calmness sits on top of a bed of uncertainty: energy prices, the refinery issue, and global fluctuations could easily disturb it again. For now, the central bank is in wait and see mode, not planning to cut rates until at least mid-2026, in our opinion.

But the real tension in the story comes from the political scene. Protests continue, driven by students but now pulling in broader groups, all demanding clarity, change, or at least a way out of a long political stalemate. Then came the shock - the NIS refinery shutdown - after the U.S. declined to extend a special license. It’s no surprise investors got jittery. Add fears that natural gas supplies might be next, and it feels like Serbia is juggling political, energy, and geopolitical pressures all at once. Unsurprisingly, EU accession talks have nearly frozen.

Yet, and this is the twist, the fiscal picture looks unusually solid. The deficit is tiny so far, just 0.7% of GDP, much better than expected. The government is being cautious, even setting aside EUR 1.4bn in the budget in case it needs to nationalize NIS. That could reshape everything from public finances to external balances, but for now, debt levels remain on a healthy downward trend.

And what about the markets? They’re not panicking, for now. Dinar bonds are stable but trading with thin liquidity as yields hover above 5% while everyone waits for a resolution to the NIS issue. Eurobonds, too, are quieter than usual — turnover is soft, and yields nudged up by about 20 bps recently as risk perception ticked higher. Meanwhile, the dinar felt some pressure when the refinery shutdown and retail buyers rushed for euros, but the central bank statement hints rate stability is not in question. With EUR 30bn in reserves, we feel they can easily controle the situation.

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