By Biagio Carrano
The weather forecasts for the summer still predict hot days ahead, but for the Serbian economy, autumn has already begun: whether it will enter the winter of a recession or remain in the prolonged withering of stagnation depends not only on international factors but also on the government’s economic choices.
Now that we are past the halfway point of the year, it seems highly unlikely that Serbia’s economy will meet or even come close to the growth forecasts made just six months ago.
In April of this year, the World Bank cut its growth estimates from 4.2% to 3.5%, with the EBRD recording the same outlook from a previous 4%. More realistically, the International Monetary Fund lowered the figure to 3%. But with actual growth in the first quarter of just 2% and seasonally adjusted growth even negative at 0.6%, it seems very likely that there will be a further downgrade of the country’s economic outlook in early fall. The fact is that the 2% recorded in the first quarter of 2025 is the worst result for that period of the year in the last decade, excluding, of course, 2020 and the pandemic. And even if the 2.7% forecast by the Bank of Serbia for the second quarter of 2025 is achieved, it is still far from the 4.5% recorded in the same period last year, lower than the 3% recorded in 2023, and far from the 4.2% recorded in 2022. Even less comforting is the fact that first-quarter growth is largely the result of an increase in the value of inventories against a significant decline in net exports. In short, stocks (of raw materials, semi-finished and finished products) are growing because Serbian companies have not exported as much as they expected. And with August 1st just around the corner, when Trump’s United States, in the absence of specific agreements, will apply 35% tariffs on Serbian products, this figure becomes even more worrying.
The trade balance in 2025 shows an increase in the deficit, with a progressive deterioration in the ratio between imports and exports. Compared to the previous period, in the first four months of the year, exports grew by 6.6% and imports by 11%. In April, exports fell by 4.5% and imports grew by 16.7% compared to April 2024, with an overall imbalance of €1.3 billion, up 69.8% compared to April 2024. Last year, the deficit stood at €3.9 billion. It should also be noted that the growth in the value of exports is lower than the national inflation rate and well below the rate of change in labor and energy costs, while imports are growing at almost four times that rate. In short, Serbian exporting companies are absorbing part of the higher costs, resulting in lower margins.
From January to May 2024, the balance of payments had already recorded almost €2 billion in foreign direct investment (€1.943 billion to be exact), while this year, in the same period, only €631 million entered the country, a drop of 67%. Even more worrying is the fact that in the first few months of the year, foreign investors decided to cash in and take around one billion euros out of the country, resulting in a negative balance of payments for the first time in many years, amounting to around 350 million euros. A further negative impact also comes from the approximately €600 million invested abroad by Serbian companies and citizens in the first four months of the year, in some cases corporate investments, in many others the purchase of real estate to export currency and acquire property at lower costs than in their home country.
The slowdown in economic growth is due to the decline in three sectors that had the most positive impact on it in previous years: construction, trade, and tourism. On the other hand, the information technology sector is growing, on which the Bank of Serbia is counting heavily to meet its growth forecasts for the second quarter.
Construction: from growth driver to brake?
In the first quarter of 2025, construction activity in the Republic of Serbia decreased by 1.4% at current prices compared to the same period last year, while at constant prices the decrease was 5.6%. Looking at the type of construction, the value of completed residential building work increased (4.8%), while other construction (roads, pipelines, industrial complexes, etc.) decreased by 10.2% at constant prices. This is the second consecutive quarter of decline for the sector that has driven Serbia’s economic growth so far, and the tragedy at Novi Sad station on November 1 has certainly led to a sharp slowdown in procedures for new public infrastructure contracts.
In the first quarter of 2025, a total of 5,551 building permits were issued. The majority of these permits (4,596) were for the construction of residential buildings, while the remainder (955) was for transport infrastructure, pipelines, and industrial complexes. The total number of permits issued in the first quarter is 2.7% lower than in the same period of the previous year. The total estimated value of the works, based on the permits issued, in the first quarter of 2025 amounts to 161,139 million dinars, which represents a decrease of 23.2% compared to the same quarter of the previous year. The value of completed construction in the first quarter of 2025 fell by 5.6% at constant prices compared to the same period in 2024, but plummeted by 39% compared to the previous period.
While works on the Expo2027 site led to 7.4% growth in the Belgrade region, it lagged behind construction activity in Šumadija and western Serbia (+16.6% at constant prices), while Vojvodina saw a 25.5% decline, partly due to the completion of work on the railway line with Hungary, which was not replaced by other public contracts, which were virtually at a standstill.
The value of completed construction in the first quarter of 2025 fell by 5.6% at constant prices compared to the same period in 2024, but plummeted by 39% compared to the previous period. While real estate sales are still growing at the national level, Belgrade, which had been experiencing booming rates for years, recorded its first decline in many quarters at the beginning of 2025.
Trade: foreign markets in recession, domestic market sluggish
Total external trade in goods for the period January-April 2025 amounted to $26.5 billion, an increase of 9.0% compared to the corresponding period in 2024. Exports of goods amounted to $11.5 billion, an increase of 6.6% compared to the same period in 2024. Imports amounted to $14.96 billion, an increase of 11.0% compared to the same period in 2024. The deficit amounted to $3.4 billion, an increase of 28.9% compared to the corresponding period in 2024. The export/import ratio was 77.2%, lower than in the corresponding period in 2024, when it was 80.4%.
External trade was also impacted by the failure of the Grande Punto production line in Kragujevac, which, despite state funding of 48 million and commitments from various banks for even higher amounts, failed to meet the expected volumes due to incredible problems in the logistics chain and legal issues regarding the correct registration of workers who arrived from Italy to improve efficiency and make up for the shortage of Serbian personnel.
In the last month for which data is available, April, trade amounted to $7.2 billion, an increase of 11.2% compared to April 2024. Exports amounted to just over $3 billion, an increase of 4.5% compared to April 2024. Imports amounted to $4.1 billion, an increase of 16.7% compared to April 2024. The deficit was $1,142.4 million, an increase of 69.8% compared to April 2024.
The major external trade partners in exports in April 2025 were Germany, USD 490.9 million (growth of 8.5% when related to the corresponding period in 2024), Italy, USD 189.3 million (growth of 8.4%), Bosnia and Herzegovina, USD 187.6 million (growth of 6.8%), China, USD 160.6 million (fall of 14.5%), and Hungary, USD 155.1 million (growth of 6.5%). The major external trade partners in imports were China, USD 623.4 million (growth of 41.4% when compared to the corresponding period in 2024), Germany, USD 474.7 million (fall of 3.9%), Bosnia and Herzegovina, USD 340.0 million (growth of 301.4%), Italy, USD 254.4 million, (fall of 10.7%), and Turkey, USD 188.1 million (fall of 7.9%).
In the first quarter of 2025, wholesale turnover at current prices was down 9.5%, while at constant prices, there was an 11.8% decline compared to the previous year’s average.
Retail trade fared no better, with a 6.4% decline in the first three months at current prices compared to the 2024 average, while at constant prices, there was an 8.3% decrease compared to the previous year’s average. There was also a recovery in the spring, with the first five months showing an increase of 4.9% at current prices and 1.8% at constant prices compared to the same period in 2024. However, the problem of uncompetitive distribution chains remains, imposing higher final prices than in many other more developed European countries.
Tourism, empty hotels, and falling prices
In 2024, Serbia recorded foreign currency revenues from tourism of €2.83 billion, up 11% on the previous year. It is unlikely that the same results will be achieved this year. While the number of overnight stays in the first three months of this year amounted to approximately 2.5 million, a slight decrease of 1.6% compared to 2024, the figure for April 2025 shows a 0.1% increase in arrivals (+0.4% in terms of overnight stays) of foreign tourists compared to the same month in 2024 and a 16.3% decrease (-20.4% in terms of overnight stays) of domestic tourists. The figures for May, traditionally a positive month, are even worse, with foreign visitors down 3.8% (-5.1% in terms of nights) and Serbian visitors down 3.7% (-6.8%). Foreign tourists in Serbia come mainly from Turkey, Russia, and China, which is indicative of how the country is not a destination for Europeans.
These figures are understandable in light of the current social and political situation, but they have an impact on the forecasts of a sector that, driven by the 2027 thematic Expo, aimed to increase the accommodation capacity of the capital alone from the current 13,000 to at least 16,000 beds, no less than 3,000 additional places to be created through the renovation of the current 112 hotels and the construction of no less than 15 other facilities.
After years of significant growth in domestic demand, both in tourism and in the restaurant sector, a sharp slowdown is now being observed. While hotels have lowered their prices (at the end of July in Belgrade, there are four-star hotels offering single rooms for €60 and five-star hotels for €130), restaurants are less flexible in lowering their prices, partly due to increases in food prices. This has led to a decline in customers in the restaurant sector, which in the capital often has prices comparable to those in large international cities.
The digital industry: pride and enemy of the government
The only sector that has shown solid and stable growth in the first three or four months of this year is Information & Telecommunication Technology, which exported services worth €1.48 billion from January to April, up 17% compared to the first four months of last year. Even more positive is the result of trade, which was positive for Serbia by €1.1 billion, but above all for the countries of destination of the services processed in Serbia, namely the United States, Great Britain, Switzerland, and Germany, indicating that Serbian ICT is also competitive in highly innovative countries.
This is a sector that has grown without any public direction or economic support, capable of finding quality customers in the international market to whom it often offers innovations developed entirely in Serbia. Many companies in the sector have explicitly supported the student protests, and the cancellation of tax breaks for highly qualified new hires from abroad has been seen as an attack by the government on the sector.
Yet a single thriving sector is unlikely to reverse the trends that are clearly emerging halfway through the year, not least the growth in wages, which is now a concern for many foreign entrepreneurs.
Wages rising, businesses declining
The average gross wage calculated for May 2025 reached 148,930 dinars, while the average net wage (after taxes and contributions) was 107,705 dinars, or 920 euros. Compared to May of the previous year, the average gross salary for May 2025 increased by 7.7% in nominal terms and 3.8% in real terms, while the average net salary grew by 7.5% nominally and 3.6% in real terms. The median net salary for May 2025 was 84,408 dinars (€720), which is the dividing line between the highest-paid 50% and the lowest-paid 50% of Serbian employees.
The increase in the minimum hourly wage to 327 dinars from October 1, 2025, will bring the national minimum wage to 62,008 dinars, or 530 euros net, in that month and in December. It is true that the income tax exemption allowance has been increased from 28,423 dinars to 34,322, but this has a negligible impact on employers. Component suppliers are under pressure, and the situation is even worse for the subcontracting sector, which contributed to the reindustrialization of the country in the early 2000s but now seems to have no place. Subcontractors agree on a fixed unit price for the parts they produce and cannot pass on increases in production costs to the end customer. In the current Serbian economic context, they either agree to reduce their margins, which are often already tight, or they give up the contract. The inevitable choice, especially in the textile, clothing, and footwear sectors, ends up leading to the closure of companies and plants in Serbia, either by putting them into liquidation or abandoning them to the freezing of their bank accounts as a result of debts to employees, suppliers, and the tax authorities.
The gloomy reasoning of entrepreneurs
In this context, the expectations of economic operators can only be as gloomy as a late autumn day. The Economic Sentiment Index (ESI) in the Republic of Serbia in the first quarter of 2025, with a value of 97.3, recorded a decline of 6 percentage points compared to the previous quarter, among the lowest in the decade, excluding the pandemic year 2020, and well below the value of 112.9 reached in 2019. The current value of the index reflects a decline in expectations across all sectors: the most significant in the services sector, where there was a decline of 7.9 percentage points, followed by retail trade (-2 percentage points), consumption (-1.9 percentage points), construction (-1.8 percentage points), and industry (-0.9 percentage points). Employment expectations are expected to decline over the next three months (by 5.6 percentage points), while the assessment of current orders is slightly more optimistic (+1.9 percentage points). The services confidence indicator (SCI), with a value of 2.7%, fell by 7.9 percentage points in the first quarter of 2025 compared to the previous quarter, while remaining below the long-term average of 4.1 percentage points. All three components of this indicator recorded a decline, particularly the assessment of demand in the previous quarter and expected demand in the following quarter (down 8.6 p.p. and 8.7 p.p,. respectively), followed by the assessment of the economic situation in the previous quarter (down 6.3 p.p.).
According to entrepreneurs, the outlook for the construction sector is already in the recession quadrant.
The risk of an early freeze
Beyond the social protests that are also worrying them, the decision to increase wages in October and then again in January 2026 is holding back many companies from implementing their investment plans in the country. In addition to representing a further factor of unpredictability, these increases are not reflected in the picture we have outlined, characterized by substantial stagnation that could lead to a full-blown recession. At present, with the exception of the ICT sector, the Serbian economy is unable to produce enough value to proceed with a further increase in wages. Instead of working on fiscal policy and redistributing the burden on the wealthiest segments of society and the most affluent consumers, the government has decided to respond to protests against the high cost of living not by investigating speculation and extra margins in the distribution chains, but by placing an additional financial burden on businesses.
So, Trumpian tariffs, declining foreign direct investment, galloping labor and energy costs, declining construction activity and public investment in infrastructure, unabated inflation and a consequent decline in domestic consumption, increasingly difficult recruitment of labor and highly skilled personnel, capital quietly leaving the country, and administrative, fiscal, and institutional reforms at a standstill.
In this economic context, one wonders whether the country’s current political and economic leadership is aware that the country has lost some of its traditional attractions (low labor and energy costs, low consumer and wholesale prices) without finding new ones. Suddenly, there was a delusion (believing its own propaganda) that the country was producing such high added value or attracting capital and talent at such a rate that it could transform itself into a global hub in a few years, a kind of Dubai or at least an Ireland of the Balkans. But while Dublin generates $50 billion from the digital economy with a gross domestic product of $550 billion for just over 5 million people, Serbia’s dynamic digital economy is less than a tenth of Ireland’s in a country where GDP is less than a sixth and with a million more inhabitants. Yet today, the Serbian capital offers prices closer to those of a global metropolis than a Balkan city: while a Big Mac in Dublin costs €6.70, in Belgrade it costs €4.90 (in Sofia €4, in Bucharest as little as €2.20), a difference not justified by the standard of living: in 2024, the annual purchasing power of an Irish person was $115,337, while a Serbian had to settle for $26,884, or 76% less.
While it is true that all economic growth inevitably leads to increased regional imbalances, economic inequalities, and social tensions, it is equally true that the positive aspects of the phenomenon have been emphasized and highlighted, without effectively addressing purchasing power, the labor and talent markets, inflation, the quality of public services and infrastructure, in short, on the development of a sustainable growth model capable of moving from low-cost manufacturing to high value-added services, attracting talent from all over the world and not just drivers and riders, durable over time and not based solely on the consumption of land or non-durable goods. There was a delusion that individual success stories confirmed the correctness of an economic policy that mixed godparenthood laissez-faire with paternalistic welfare, once again confirming that trickle-down economics doesn’t work, i.e., that the wealth achieved by entrepreneurs in certain sectors would miraculously spill over into society as a whole, smoothing over the contradictions created by this very model.
Now this illusion, which was believed or even peddled in international forums, is beginning to fade, presenting the bill in economic, social, and political terms, as the protests that have been going on in the country for eight months remind us. But we will discuss these aspects in the next article.
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*NOTE:
All data cited are taken from official documents of the National Statistical Office of Serbia and the Bank of Serbia, in particular:
https://publikacije.stat.gov.rs/G2025/Pdf/G20253007.pdf
https://publikacije.stat.gov.rs/G2025/Pdf/G20258002.pdf
https://www.stat.gov.rs/oblasti/gradjevinarstvo/
https://publikacije.stat.gov.rs/G2025/HTML/G20251143.html
https://www.nbs.rs/export/sites/NBS_site/documents-eng/finansijska-stabilnost/presentation_invest.pdf