If Serbia wants faster and more sustainable growth, it must come more and more from productivity, innovation and a better institutional environment, and for now this is not sufficiently visible either in numbers or in reforms.
International Monetary Fund (IMF) published a new report on Serbia on June 15, in which, after the weak 2025, a cautious conclusion is offered: economy Serbia is recovering.
Weak economic activity last year was a consequence of the so-called external shocks. Among them, the IMF includes energy problems, a weak agricultural season, and global problems trade tensions, war in the Middle East, but also domestic political protests. All this is treated by the IMF as a more or less finished or transitory matter.
How does that look in numbers? After GDP growth of 2 percent in 2025, the IMF predicts growth of 2,8 percent in 2026, and even 4 percent in 2027. The recovery is mostly seen through the growth of domestic demand, i.e. personal and public consumption i public investments (Chart 1). This all comes from a stable labor market (unemployment rate 8,8%) and wage growth (Graph 2), which all together enables the growth of household loans and ever-increasing consumption.
Fiscal policy received the highest praise from the IMF. The Ministry of Finance keeps the budget deficit below 3 percent, while the public debt is far below the critical 60 percent of GDP. The Central Bank, which so far managed to keep inflation under control despite growing pressures after the abolition of price and margin controls, introduced in the middle of last year as a political response to student and citizen protests, was implicitly rated positively.
Price controls have now been lifted, which have already started to have inflationary effects: inflation is expected to rise to 5 percent by the end of 2026 (so above the upper limit of the corridor of 4,5 percent). The IMF therefore expects the NBS to conduct a firm monetary policy: not to relax, but to be ready to further tighten it if inflation remains above the corridor. (This practically means that the IMF expects inflation to drop to 3,9 percent by the end of 2027.)
A more restrictive monetary policy is all the more necessary, because the IMF itself proposes to abolish the temporary reduction of fuel excises and to increase the price of electricity to a level that covers costs, which can further increase inflationary pressure.
Chart 1: Real GDP growth is mostly driven by private consumption (green rectangle); public consumption and gross investments in fixed assets make a smaller but positive contribution
What, however, remains as a risk that the IMF recognizes but perhaps does not highlight enough in this report?
First of all, foreign direct investments. In 2025, they more than halved (from 5,6 to 2,6 percent of GDP), and the beginning of 2026 does not show a recovery: in the first three months, the inflow is significantly weaker than in the same period in 2025, and especially in 2024. A lower level of FDI makes it difficult to finance a high current account deficit, increases the pressure on foreign exchange reserves and the fixed exchange rate of the dinar, and can raise the risk premium and the cost of borrowing. The fall in FDI warns that the investment base of the economic recovery is not particularly solid.
Admittedly, the IMF has warned about this before: the growth model based on additional work, capital, public investments and the inflow of foreign capital is gradually being exhausted. If Serbia wants faster and more sustainable growth, it must come more and more from productivity, innovation and a better institutional environment, and for now this is not sufficiently visible either in numbers or in reforms.
The second, and perhaps more important risk that the IMF now distinguishes more clearly is the political risk. Although the IMF treats the 2025 protests as one of the subsiding shocks, the report specifically warns about the next election cycle. Earlier, according to the IMF, the elections in Serbia were treated as a fiscal risk (the government starts spending more before the elections, and that then pushes the budget deficit up).
In this report, the IMF for the first time does not treat elections exclusively as a fiscal problem. The report does not say this verbatim, but the logic of the warning leads to the following conclusion: if political tensions turned into mass protests, blockades or violence, the effect would no longer be only fiscal. It would become a confidence shock: consumers would postpone purchases, investors would project, banks would become more cautious, and the government could further increase spending to calm the situation.
Chart 2: The blue line shows nominal net earnings, and the red line shows real net earnings, i.e. earnings adjusted for inflation.
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