Serbia’s 2026 two-speed economy: services surge while industry contracts

Serbia’s economic story in 2026 is becoming less about balance and more about divergence. The country’s expansion is increasingly concentrated in consumption and services, while the industrial base struggles to hold momentum—an evolution that matters for investors because it reshapes where capital flows, how productivity can grow, and how resilient the economy may be as external conditions shift.

Services and consumption lead, with external support

Early-2026 data points to a clear tilt toward services and demand-led activity. Retail trade volumes rose by 4.6% in real terms. That increase was supported by real wage growth of 7.6% alongside stable inflation at 2.5%.

On the external side, the services balance generated a surplus of €330.4 million, up 17.5% year-on-year. The improvement was attributed to ICT exports, transport services, and business outsourcing—sectors that are increasingly integrated into global markets.

Remittances also continue to reinforce household income and spending patterns, with net inflows of approximately €197.2 million.

Industry contracts despite pockets of strength

Against that backdrop, industrial activity remains under pressure. Total industrial production fell by 4.7% year-on-year cumulatively, with manufacturing down 5.6%. The automotive sector performed strongly within this broader decline, but it has not been enough to offset weakness elsewhere.

Energy production is described as temporarily stabilized by hydropower recovery, but still constrained structurally. Mining output shows only marginal growth and does not compensate for the wider contraction in industrial output.

A structural shift with implications for productivity

The report frames the divergence as more than a statistical outcome: it reflects a structural reconfiguration of how Serbia grows. Services are portrayed as benefiting from digitalization, lower capital intensity, and more flexible labor structures. Industry, by contrast, is characterized as capital-intensive and energy-dependent, with performance tied closely to external demand cycles—particularly those linked to the European Union.

This matters for productivity expectations. Historically, industrial sectors have been key drivers of productivity growth through scale economies, technological spillovers, and export revenues. Services can be important too—especially when they reach higher value-added segments—but the shift toward service-dominated growth raises questions about whether Serbia can sustain strong long-term productivity improvements.

ICT stands out—but not yet at full scale

The analysis highlights ICT services as a notable exception within the broader service expansion narrative. Serbia has built competitiveness in software development and IT outsourcing; exports are described as growing steadily and contributing to the services surplus.

However, the piece notes that even with this progress, the scale of ICT-related activity is not yet sufficient to fully compensate for weaknesses in industrial sectors.

Employment reallocates toward services

The divergence also shows up in employment dynamics. Service sectors—particularly retail, hospitality, and IT—are absorbing labor supported by rising demand and relatively flexible employment structures.

Industrial sectors face pressures tied to costs, demand conditions, and operational constraints. The resulting labor reallocation may support short-term employment stability but does not necessarily translate into stronger long-term productivity growth.

Energy constraints amplify the split

Energy dynamics are presented as a critical factor behind why industry struggles while services expand even under constraints. Industrial activity is described as highly sensitive to energy costs and reliability—both of which remain challenging in Serbia due to volatility and structural limitations affecting pricing and availability.

Services—especially digital or knowledge-based activities—are portrayed as less exposed to these issues, allowing them to expand despite an unfavorable energy environment.

External demand from Europe weighs on manufacturers

The external environment reinforces the pattern through Serbia’s integration into European value chains. With industrial slowdown noted in Europe—particularly Germany—the report says export opportunities for Serbian manufacturers are limited.

Services are described as less dependent on physical trade flows and therefore able to access global markets more flexibly.

Investment flows deepen the two-speed dynamic

The investment landscape mirrors these differences in risk profiles and return horizons. Sectors aligned with services and consumption—such as retail, real estate, and IT—are said to attract capital supported by stable demand and lower perceived risk.

Industrial sectors facing structural challenges attract less investment; foreign direct investment inflows fell sharply to €55.3 million, down 76.9% year-on-year (as stated in the source). The report argues that this reinforces a two-speed economy: capital moves toward areas delivering quicker returns while sectors requiring longer-term transformation face tighter constraints.

Banks’ credit allocation reflects risk considerations

The financial system plays a mediating role through bank lending decisions based on risk and return considerations. The piece cites major institutions including Banca Intesa, UniCredit Bank Serbia, and OTP Bank as allocating credit in ways that may favor service-oriented sectors and established industrial segments such as automotive—while limiting financing for more diversified or emerging industrial activities.

Trade credit rises as firms adapt

The corporate sector’s adaptation is also reflected in trade credit growth of €997.5 million. Companies are described as relying more on internal financing and supply-chain arrangements where access to external capital is constrained.

This can provide flexibility but may also reinforce concentration: stronger sectors tend to be better positioned to access and extend credit.

Public spending offers support—but alignment matters

Fiscal policy interacts with these dynamics through demand support and public investment. The report points to increased public spending—especially capital expenditures—as a counterbalance to private-sector weakness.

Infrastructure projects can support both services and industry by improving connectivity and reducing costs; still, effectiveness depends on whether investments align with broader structural needs.

A changing Europe raises both pressure and opportunity

The analysis places Serbia’s divergence within wider European shifts toward decarbonization, digitalization, and strategic autonomy. Industries across Europe are adapting technologies and regulatory frameworks while services continue expanding; Serbia’s ability to align with these trends depends on addressing domestic constraints alongside external changes.

The policy challenge: connect services to industry or risk lasting imbalance

The piece concludes that Serbia’s two-speed economy is not automatically negative but requires careful management because imbalance can increase dependence on a narrow set of drivers that may struggle to adapt over time.

One pathway proposed is strengthening linkages between services and industry—for example through digitalization that can improve industrial productivity via automation and data analytics while integrating firms into global supply chains. Another priority is addressing structural constraints in industry related to energy reliability/costs, infrastructure gaps,และ regulatory frameworks so competitiveness improves enough to attract investment back into manufacturing capacity.

If policy can rebalance incentives for diversification alongside continued momentum in higher-value service segments such as ICT exports—and if energy-related constraints ease—the report suggests Serbia could evolve from divergence toward a more resilient model capable of sustaining growth amid complex change.