Serbia: Complex environment eroding investor confidence
Serbia’s economy slowed to around 2% y/y in the first half of 2025, with consumption remaining resilient but investment activity weakening sharply. Full-year growth expectatons have been revised down to 2.7%, though a rebound above 4% is expected in 2026, supported by Expo-related projects and new automobile production.
Inflation has moved back above target, reaching close to 5% due to food price shocks from poor weather and higher oil prices. The government responded by capping wholesale and retail margins, but inflation is expected to stay near the top of the target band through year-end before easing gradually in 2026. This deterioration has removed the space for monetary easing, keeping the NBS in a restrictive stance.
Fiscal policy remains mildly expansionary, with deficits around 3% of GDP projected until 2028, while public debt is stable. On the markets side, Eurobond spreads have widened amid political risk and inflation concerns, although the dinar has remained stable against the euro thanks to central bank interventions.
Political uncertainty continues to weigh on sentiment, as protests triggered by last year’s Novi Sad tragedy persist despite a new government. At the same time, EU skepticism is rising and external risks, including potential sanctions and tariffs, continue to cast a shadow over the outlook.
Author
Erste Bank Research Team
Erste Bank
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