Serbia’s Fiscal Strategy 2026–2028 bets on construction surge, services peak and a slower industrial rebound

Serbia’s revised Fiscal Strategy for 2026–2028 reframes growth as a staged process rather than a simple acceleration cycle. The plan leans heavily on public capital spending to generate demand first through construction, then shifts the momentum to services during the EXPO period, while industry is expected to normalise more gradually as external conditions stabilise and supply chains adjust.

Growth forecast hinges on sustained investment

The government projects real GDP growth of 3.0% in 2026, rising to 5.0% in 2027 before moderating to 3.5% in 2028. The strategy’s macro logic rests on continued capital formation: gross fixed investment is forecast to expand by 6.9% in 2026, 5.9% in 2027 and 4.5% in 2028, reflecting an explicit policy choice to anchor activity in infrastructure and large-scale public works.

Exports are expected to grow by 4.7%, 8.4% and 5.6% across the same period, but the early phase remains import-intensive. That dynamic is projected to produce a negative net export contribution of -1.6 percentage points in 2026.

Fiscal targets look steady, but capital spending drives the expansion

On headline discipline, the strategy keeps the general government deficit at 3.0% of GDP in both 2026 and 2027, narrowing to 2.5% by 2028. Public debt is projected to decline marginally from 44.5% of GDP in 2026 to 44.1% by the end of the period.

However, the expansionary thrust appears in spending composition rather than aggregate targets. Consolidated capital expenditure is set at RSD 737.4bn in 2026, increasing to RSD 784.1bn by 2028, underscoring that infrastructure outlays are central to how the strategy intends to deliver growth.

Construction leads in the near term; services peak around EXPO

The sectoral projections show a deliberate sequencing of economic activity. Construction is forecast to expand by 8.5% in 2026, making it the dominant driver of near-term output growth. The strategy links this surge to a concentrated pipeline of state-led projects, including EXPO Belgrade 2027 (accounting for RSD 42.6bn in 2026), as well as the National Football Stadium, the Belgrade Metro system, and multiple motorway and railway corridors.

In this framework, simultaneity matters: with several major projects running within a compressed execution window, construction becomes the primary transmission channel for fiscal stimulus.

By contrast, services are expected to take over decisively in 2027, projected to grow by 5.9%, the fastest among all sectors. The strategy attributes this shift partly to EXPO’s economic footprint and wider spillovers into tourism, transport, logistics and business services.

It also anticipates an improvement in services trade performance, projecting an average services surplus of approximately €4.6bn annually over the period and identifying 2027 as the peak year for services exports.

This transition is positioned as important for external balances: while the current account deteriorates to an estimated deficit of 6.0% of GDP in 2026 before narrowing to 4.9% in 2027.

Industry lags amid energy volatility and EU carbon policy

Industrial activity is treated as a later-cycle beneficiary rather than an immediate one. The strategy forecasts industrial growth of just 0.4% in 2026 before recovering to 3.9% in 2027 and reaching 4.7% in 2028.

The document cites both external and structural constraints behind this delay: weaker demand from key export markets and volatility tied to energy and commodity prices continue to weigh on production.

It also highlights growing exposure to climate-related trade measures—specifically the EU’s Carbon Border Adjustment Mechanism (CBAM)—which it expects will reshape cost structures for energy-intensive industries. While it does not quantify CBAM’s full impact within this cycle (stating that a more detailed assessment will be incorporated later), it signals that sectors such as metals, cement and chemicals could face rising compliance costs and competitiveness pressures.

Alongside this recognition, Serbia is preparing domestic legislation through a Law on the Taxation of Carbon-Intensive Imported Products, pointing toward emerging alignment with EU carbon pricing frameworks.

A transport-heavy investment plan shapes second-round effects

The most visible feature of the strategy is how public investment is allocated across sectors—particularly toward transport and urban infrastructure—with direct implications for where growth shows up first.

Among major allocations are Belgrade Metro Line 1 funding rising from RSD 20.7bn in 2026 to RSD 27.8bn by mid-period; the Pojate–Preljina motorway; and Belgrade–Niš railway modernisation accelerating sharply to RSD 17.0bn by 2028.

At a grouped level, transport and logistics infrastructure dominates capital spending capacity, followed by EXPO-related urban development and then municipal and environmental projects.

The strategy links these choices mechanically: construction benefits immediately from contracting activity and material demand; services capture second-round effects through mobility, tourism and urban consumption; while industry depends on longer transmission chains requiring both domestic input demand and improved external market conditions before sustaining growth.

Energy transition supports renewables but raises grid constraints

Energy is presented as both an enabler for investment-led growth and a potential bottleneck for scaling industrial output under new carbon pressures.

The strategy confirms continued support for renewable generation following earlier auction rounds that have already mobilised about private investment totaling approximately 1.2 GW. It also plans guarantees up to RSD 276.7bn, including RSD 222.8bn for a 1 GW solar and battery storage programme alongside hydropower and grid-related investments.

The document warns that grid readiness may become limiting: renewable expansion combined with industrial electrification increases demands on balancing capacity and storage infrastructure—yet it does not fully quantify how large upgrades need to be across distribution and transmission networks.

Financing outlook relies on FDI—and may tilt toward lower-carbon sectors

The strategy expects foreign direct investment (FDI) to remain crucial as a stabilising factor, averaging around 4.5% of GDP annually. It also identifies FDI as the primary financing source for Serbia’s current account deficit.

At the same time, it anticipates that FDI composition could shift toward sectors with lower carbon intensity and stronger alignment with EU regulatory frameworks—reinforcing divergence between services activity supported by EXPO-linked demand dynamics and traditional heavy industry facing higher carbon-related compliance costs.

A coherent sequence—yet execution risk remains

Taken together, Serbia’s Fiscal Strategy outlines three stages: an investment surge led by construction financed through controlled fiscal expansion beginning in 2026; a services peak driven by EXPO during 2027; and a more balanced but slower expansion extending into 2028, when industry gradually recovers under tighter external conditions shaped by energy volatility and carbon policy developments.

The sequencing is internally consistent—construction provides immediate impulse while services capture visible peaks—but it carries risks investors will watch closely: reliance on large-scale public projects creates execution pressure within a compressed timeframe; delayed industrial recovery leaves exposure higher if external shocks or carbon pricing changes intensify; and energy transition requirements add complexity beyond traditional fiscal planning because industrial competitiveness becomes linked not only to demand but also to infrastructure readiness.