ÐÓ°ÉÂÛ̳

Country Context

Serbia¡¯s economic growth accelerated to 3.9% in 2024, above the previously projected 3.5%, thanks to a better-than-expected performance of the construction industry and services sector. However, a severe drought that hit Serbia in the summer of 2024 significantly impacted the agricultural sector and contributed to a growth slowdown in the second half of the year. On the expenditure side, consumption and investment were the main drivers of growth in 2024 while net exports had a marginally negative contribution. Consumption started to recover due to the continued increase in real incomes (both in the public and private sectors). However, there is still a high degree of volatility associated with agriculture (and related food industry) output.

This underscores the critical need for Serbia to introduce policy and investment measures to mitigate the negative impact of increasing weather shocks and to promote private sector participation in these measures. GDP growth is expected to slow down in 2025, with risks tilted to the downside. The incidence of poverty declined to 7.7% in 2024 and is projected to continue to decline albeit at a slower rate, as the remaining poor are often characterized by chronic unemployment and thus not benefiting from economic growth.

Last Updated: May 02, 2025

Strategy

ÐÓ°ÉÂÛ̳ Group's program for Serbia is guided by the (CPF) for FY2022-2026, approved in May 2022. The CPF aims to support the country in strengthening its institutions to accelerate economic growth in a fiscally and environmentally sustainable manner and promote more inclusive service delivery.

ÐÓ°ÉÂÛ̳ Group supports several critical areas, including maintaining macroeconomic stability and reforming the public sector; fostering a competitive business environment and enhancing regional connectivity; improving institutional capacity for reform implementation and monitoring; and strengthening human development.

At the same time, the CPF emphasizes cross-cutting institutional strengthening and policy reforms to promote greener, more resilient growth, focusing on both fiscal and budgetary measures as well as green sectoral investments. Additionally, it aims to enhance the capacity of local self-governments (LSGs) to deliver services effectively.

Key Engagement

ÐÓ°ÉÂÛ̳ Group¡¯s program currently provides policy advice and financing assistance in several areas: transport (railways and local roads); real estate management/business environment; R&D and innovation; competitive agriculture; health; capital market development; public sector efficiency and modernization (including the digitalization of selected public services and the modernization of tax administration); green recovery; energy efficiency; and early childhood education. To facilitate economic integration, the ÐÓ°ÉÂÛ̳ Group is also supporting two regional projects: (1) aiming at improving connectivity along the Drina and Sava river corridors and (2) enhancing trade and transport in the Western Balkans.

An important area of the ÐÓ°ÉÂÛ̳ Group¡¯s engagement is providing support to the country¡¯s innovation ecosystem. The , supported by  an EU grant, aims to enhance the relevance and excellence of scientific research, improve the capacity of Serbia¡¯s scientific research organizations, promote innovative entrepreneurship, and provide access to funding for company growth, thereby contributing to the growth and competitiveness of the Serbian economy.

ÐÓ°ÉÂÛ̳ Group is also providing substantial support to the transport sector. The project, with a budget of $300 million, aims to enhance the capacity of local governments to manage sustainable infrastructure and improve access to economic and social opportunities in a climate-conscious manner. This project specifically targets the transport sector, which is a significant source of greenhouse gas emissions and contributes to air and noise pollution in Serbian cities. In collaboration with the French Development Agency (AFD), the Multiphase Programmatic Approach (MPA) for Railway Sector Modernization aims to improve the maintenance of existing railway infrastructure, facilities, and asset management. The MPA includes a total financing envelope of $400 million over three phases, with $255 million currently being implementation over two ongoing phases.

Last Updated: May 02, 2025

Recent Economic Developments

Relatively strong growth in 2024 was driven by a recovery of private sector consumption and investment. Net exports made a small negative contribution to growth due to lower-than-expected export growth, as external demand weakened, and imports remained at a high level. Manufacturing remained resilient to external developments, with output growing 3.1% YoY. Labor market indicators continued to improve. The unemployment rate averaged 8.6% in 2024, and the employment rate reached a record high 51.4%. The inflation index edged up due to an increase in food prices, rents, and communal services. The National Bank of Serbia (NBS) lowered the key policy rate to 5.75% in September 2024 and has kept it unchanged since.

Budgetary revenues overperformed significantly in 2024 (up 13.5% in nominal terms), primarily thanks to a higher-than-planned collection of contributions for social insurance, VAT, and excises. Expenditures increased by 13.1% in nominal terms, and the consolidated fiscal deficit increased only slightly in nominal terms but remained the same as a share of GDP at 2%. Net FDI inflows continued to perform strongly, increasing by 7.9% to EUR 4.6 billion. Foreign currency reserves were at a record high level of EUR 29.3 billion by year-end.

Economic Outlook

The Serbian economy is expected to grow at around 3.5-4% over the medium term, driven primarily by consumption and, to some extent, by investment. However, there are downside risks. Downside risks relate to the performance of state-owned enterprises (SOEs) which might require support from the budget, external demand for Serbian exports might decrease given uncertainty in trade policy, and the impact of extreme weather on agriculture and infrastructure could be significant. Inflation is expected to decline gradually and stay within the NBS target band over the medium term. The fiscal deficit is now projected to increase compared to 2023/2024 since the government embarked on largescale public infrastructure spending plans. Sustained economic growth will continue to lift more Serbians out of poverty. However, the remaining poor are increasingly concentrated among pensioners, the long-term unemployed, or those completely out of the labor force. Thus, targeted social assistance or other direct channels will become essential to ensure further poverty reduction.

Last Updated: May 02, 2025