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Serbia

Displaying credibility toward 2027

B2

MEDIUM RISK for enterprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

Updated in December 2024.

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Form of state Parliamentary Republic
Head of state Aleksandar Vučić (President)
Next elections 2027, presidential and legislative

Strengths & Weaknesses

  • Collaboration with the IMF and adherence to fiscal deficit targets are ensuring a steady decline in public debt, projected to reach 45% of GDP by 2025.
  • Robust growth, supported by strong private consumption and FDI inflows.
  • Ambitious infrastructure projects and energy diversification, including EXPO 2027, lithium mining and nuclear collaboration, position Serbia for sustainable long-term growth.

 

  • Tensions with Kosovo and balancing EU accession with ties to Russia and China complicate foreign relations, attracting criticism and potential diplomatic fallout.
  • A widening current account deficit and reliance on import-driven infrastructure spending pose risks to macroeconomic stability.
  • Persistent issues with regulatory quality, local governance and environmental management hinder investor confidence and sustainable progress.

Economic Overview

Steady growth and a solid monetary policy trend

Serbia's economy has demonstrated resilience and adaptability, rebounding from global disruptions and local challenges. Following sluggish growth of just +1.2% in 2022-2023 due to the energy crisis and inflationary pressures, economic activity surged with +4.3% growth in the first half of 2024, driven by moderating import demand and a rebound in net trade. By end-2024, real GDP growth is forecasted at approximately +3.8%, and expected to approach +4.5% in 2025 and accelerate through 2027 before stabilizing around potential at +4% by 2028. Private consumption is recovering, buoyed by strong wage growth and easing inflation, while foreign direct investment (FDI) is energizing infrastructure and utility development.

Inflation pressures have eased significantly, declining from a peak of 16.2% in February 2023 to 7.6% at the close of 2023, and further stabilizing within the National Bank of Serbia's (NBS) target range by mid-2024. Proactive monetary policy, including cumulative rate hikes totaling 550bps from April 2022 to July 2023, has anchored expectations. The gradual easing cycle initiated in mid-2024 aligns with the decreasing inflation, targeting a sustainable rate of 3.5% by end-2025.

While these gains reflect strong policy execution, risks persist. Supply-side constraints, a tight labor market and rising import demand could temper the momentum. Nonetheless, the structural strengthening of energy resilience and robust external reserves, now equivalent to six months of imports, provide a cushion against shocks.

A leap into the future, but in what direction?

Serbia's medium-term outlook is shaped by its “Leap into the Future—Serbia EXPO 2027” program, which emphasizes ambitious infrastructure investments. Public investment, already at elevated levels, continues to rise, focusing on transport, energy and utilities. Notably, the recent repeal of a 35-year moratorium on nuclear energy and the initiation of a nuclear energy cooperation agreement with France highlight Serbia’s commitment to sustainable energy transition.

Fiscal metrics show signs of stabilization. Gross external debt is projected to remain at around 62-63% of GDP, while public debt will stay near 50% of GDP on a declining trajectory. The government aims to reduce public debt to 45% of GDP by 2025 and maintain this downward trajectory thereafter. The fiscal deficit, at 3% of GDP in 2024, aligns with efforts to sustain public investments while maintaining fiscal discipline. Sovereign debt issuance has been well-received, with ESG bonds yielding 4.75% after hedging into euros, and domestic bonds achieving yields around 6%.

External dynamics are less favorable. The current account deficit is projected to widen to over 4% of GDP by 2025 as infrastructure spending boosts imports. However, strong FDI flows, exemplified by China’s USD990mn greenfield investment in Zrenjanin, underpin medium-term growth potential. Managing these external vulnerabilities alongside domestic fiscal goals will be key to sustaining momentum.

The Serbian government’s collaboration with the International Monetary Fund (IMF) has been instrumental in underpinning fiscal discipline and structural reforms. The current program emphasizes keeping fiscal deficits at no more than 3% of GDP, balancing necessary public investments and priority spending with debt reduction. These measures aim to enhance economic resilience while ensuring public debt remains on a sustainable downward trajectory.

Investment grade and there to stay

Political stability remains precarious. Tensions with Kosovo persist, with a durable resolution unlikely in the short term. Meanwhile, Serbia’s foreign policy balancing act – maintaining EU accession aspirations while fostering close ties with Russia and China – adds complexity. The government’s decision to appoint pro-Russian officials has drawn international criticism, particularly from the US, potentially straining diplomatic and economic relations.

Contract frustration and succession risks are non-trivial, particularly as Serbia’s energy and mining sectors attract foreign investment. Yet, initiatives like the Leap into the Future signal long-term strategic thinking, suggesting a willingness to navigate challenges for sustainable growth. Serbia's mining sector, particularly lithium exploration, represents a double-edged sword for the nation’s economy. Despite its potential to position Serbia as a key player in the global energy transition, the government’s aggressive push for lithium mining and nuclear collaboration agreements risks facing increasing domestic opposition. Environmental concerns and calls for equitable resource management underscore the delicate balance policymakers must strike.

Despite an improved investment grade rating achieved in October 2024, regulatory quality and rule of law concerns linger. The ambitious public investment agenda underscores the government’s commitment to economic modernization, yet weaknesses in governance, economic pluralism and environmental sustainability could hinder progress.

Trade Structure by destination/origin 

(% of total, 2023)

Trade Structure by product  

(% of total, annual 2023)

Trade structure by destination/origin

(% of total, 2022)

Exports Rank Imports
Germany 13.7%
1
12.1% China
Bosnia and Herzegovina 7.5%
2
11.4% Germany
Italy 7.2%
3
7.5% Russian Federation
Hungary 5.4%
4
6.6% Italy
Romania 4.4%
5
5.6% Hungary

Trade structure by product

(% of total, 2022)

Exports Rank Imports
Electrical machinery, apparatus and appliances, n.e.s. 11.0%
1
7.7% Petroleum, petroleum products and related materials
Metalliferous ores and metal scrap 7.0%
2
5.7% Electrical machinery, apparatus and appliances, n.e.s.
Power generating machinery and equipment 5.0%
3
4.4% Gas, natural and manufactured
Iron and steel 4.4%
4
4.1% Electric current
Vegetables and fruits 4.2%
5
3.9% Medicinal and pharmaceutical products

Contacts

Luca Moneta
Senior Economist for Emerging Markets
luca.moneta@allianz-trade.com

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