Serbia Faces Inflation Pressures Amid Climate and Geopolitical Shocks

Serbia's latest Inflation Report highlights how a combination of adverse weather, rising global oil prices, and geopolitical tensions are pushing inflation higher and reshaping the outlook for economic growth in 2025 and beyond.

After expected slowdowns in April and May, inflation picked up pace in June and July, driven by a sharp rise in unprocessed food prices—especially fruit—due to spring frosts and extreme summer heat, as well as the spike in oil prices following conflict in the Middle East. The central bank has responded by increasing engagement with insurers and other institutions to make risk protection more accessible to farmers, and by proposing targeted measures to stabilize food markets. Core inflation closely tracked headline figures, but for the first time in over a year, dipped below it in July. Regional peers experienced similar inflationary increases, mainly from higher food and energy costs.

Given these pressures, the National Bank of Serbia (NBS) now projects inflation to hover near the upper bound of its target band for the rest of the year, before easing toward 4% on average in 2026 as monetary policy remains tight, imported inflation recedes, and the base effect from food prices fades. Economic growth in the first half of 2025 was subdued at 2%, dampened by weaker investment confidence, global uncertainties, and soft agricultural output—prompting a downward revision to the full-year GDP forecast to 2.75%. Despite this, the central bank expects growth to accelerate in the second half, driven by expanded automobile production, exports, and major infrastructure projects, with annual GDP growth of 4–5% penciled in for the next two years, and further acceleration anticipated in 2027 thanks to the international Expo event.

On the external front, a rise in imports outpaced exports, resulting in a wider current account deficit, though goods exports remained resilient and foreign direct investment is expected to recover in the latter part of the year. The dinar has been stable, supported by strong foreign exchange reserves, including a growing gold component, which offers a buffer against external shocks. Fiscal management has been prudent, with a small deficit and declining public debt levels, while recent monetary policy has maintained a steady policy rate to guard against persistent inflation risks. Lending continues robustly, household savings are at record highs, and the banking sector remains sound.

The report concludes that Serbia’s economic stability has proven resilient in the face of unpredictable global shocks—whether from geopolitics, energy, or climate—thanks to careful fiscal and monetary management. Continued policy vigilance and coordination will be essential to maintaining stability and growth as new uncertainties arise, underscoring Serbia’s ongoing appeal as an investment destination.