Serbia

Solid growth continuing into 2025

The Serbian economy is expected to maintain robust growth in 2025, driven by strong domestic demand and a more favourable investment environment. Household consumption (66% of GDP) will benefit from rising real wages, supported by increases in salaries and pensions. Businesses will once again take advantage of expansionary public policies, including higher infrastructure spending and investment incentives for foreign investors. However, inflation is expected to remain at the upper limit of the target set by the National Bank of Serbia (4.5%), prompting the central bank to maintain high interest rates, which could damp credit growth for both businesses and households.

At the same time, the Serbian economy continues to attract significant foreign capital, particularly in the manufacturing and energy sectors, further strengthening its productive capacity. The development of infrastructure projects, partly driven by the government "Leap into the Future – Serbia Expo 2027" initiative, is expected to modernise transportation and enhance logistical efficiency. Meanwhile, the expansion of energy production capacity, particularly through investments in renewable energy, aims to address structural deficiencies in the sector and ensure a more stable electricity supply for businesses.

The labour market will remain a major challenge. Serbia had an unemployment rate of 8.6% at the end of 2024, which is still a concern despite recovery efforts. Growth in the manufacturing sector, particularly for the automotive industry, along with expansion in services, is expected to boost job creation and contribute to a gradual decline in unemployment in 2025. Enhancing workforce skills through training programmes tailored to business needs could also help curb talent migration abroad and support productivity growth. However, the need to improve the business climate and accelerate structural reforms remains a key challenge to ensuring sustainable expansion.

Public finances under strain

The budget will remain in deficit in 2025, driven by a sharp increase in expenditures (public sector wages, infrastructure, and defence) and high financing costs. The 8% increase in public sector salaries in 2025, along with investments in Serbia Expo 2027, will add to the state’s financial burden. Additionally, the purchase of 12 Rafale fighter jets (for EUR 2.5 billion) and the reintroduction of military service in 2025 will put further strain on the budget. To meet these financing needs, the government relies on international and domestic bond markets, as well as project loans from its partners. Public debt, estimated at 47% of GDP in 2024, remains at a moderate level, and its share of GDP is expected to continue declining. However, approximately 70% of the debt is external and denominated in foreign currencies (mainly euro), which increases the exchange rate risk. Nevertheless, the firm peg of the dinar to the euro and the significant share of official creditors (55%) help mitigate the risk.

On the external front, the current account balance will remain in deficit in 2025, driven by high imports on back of strong consumer demand, infrastructure projects and purchases of military equipment. At the same time, weak economic growth in the European Union will limit export growth, particularly in the agri-food, automotive, metallurgy, electrical equipment, and plastics sectors. However, services – notably tourism, IT services, and road transport – along with remittances from the diaspora, will partially offset the trade deficit. The current account deficit will be largely financed by foreign direct investment (FDI) and portfolio inflows, which will also help increase foreign exchange reserves.

Embroiled in major political turmoil

The Serbian political landscape is dominated by the nationalist-conservative Serbian Progressive Party (SNS) – in power since 2012 and headed by President Aleksandar Vucic. The SNS further strengthened its position after winning the snap elections in December 2023 with 48.1% of the vote (129 seats out of 250 in Parliament). The party has a fragmented political opposition that criticises the ruling party and the President for their tight grip on institutions and the media. Vucic has so far benefited from weak opposition and strong popular support on back of strong economic growth and nationalist sentiment. However, SNS dominance raises concerns about the separation of powers, media pluralism and the fight against corruption. On the domestic political scene, the executive wields significant power: the presidency, government, and Parliament may be formally separate, but they sometimes lack real institutional checks and balances. International observers (OSCE, EU) have reported irregularities in various elections and recurring protests underscore growing discontent in civil society.

Since the end of 2024, Serbia has been confronted the Serbian Progressive Party’s (SNS) most serious political crisis for the since it came to power. The collapse of the newly renovated Novi Sad train station canopy in November 2024, which killed 15 people, triggered large-scale protests denouncing corruption and the lack of transparency in public procurement. Under mounting pressure, Prime Minister Milos Vucevic resigned on 28 January 2025, plunging the government into uncertainty. Public distrust remains high despite President Vu?i?’s attempts to ease tensions by releasing documents, holding officials accountable and granting pardons to some arrested protesters. If a new government is not formed quickly, a snap election will have to be called, with Parliamentary elections likely to be held in spring 2025. SNS leaders are banking on a divided opposition – which is mostly young and concentrated in major cities – to retain power, even though they risk losing their parliamentary majority. On the social front, Serbia continues to struggle with high unemployment, persistent corruption, and a brain drain, particularly among young professionals. Despite strong economic growth, inequality is fueling frustration and sparking protest movements, pushing the government to promise reforms to maintain domestic stability.

Serbia adopts a multipolar approach, maintaining dialogue with the EU, the US, Russia and China, and at the same time continuing its path toward EU accession. The Kosovo issue remains a major obstacle, as do concerns over Western pressure for formal recognition of its independence. NIS, the country’s largest oil and gas company, majority-owned by Gazprom Neft and Gazprom, has been targeted by US sanctions on the Russian energy sector since January 2025. Although these sanctions have been suspended until 28 March 2025 to enable shareholder restructuring to take place, they highlight Serbia’s delicate position –balancing its energy ties with Moscow, against which it does not impose sanctions, and its attempt to seek closer ties with the EU.

Last updated: March 2025