Serbia’s 1Q 2026 current account surplus masks a weaker capital inflow picture

Serbia’s balance of payments in the first quarter of 2026 shows a headline improvement on the current account, but investors are likely to focus on what sits behind it: a fragile financing backdrop marked by weaker foreign inflows and larger outflows. The key message is that the external surplus increasingly reflects import compression and services strength rather than a durable shift in competitiveness, while capital flows have turned less supportive.

January’s surge in the current account—and why it may not signal structural strength

In January 2026 alone, Serbia recorded a current account surplus of €418.7 million, up 264.9% year-on-year. On a broader 1Q analytical view, the pattern remains consistent: a compressed goods deficit, resilient services exports, and moderated income outflows.

The goods balance improved sharply, with the goods deficit narrowing to €85.1 million in January—down 73.8% versus the same month in 2025. However, the improvement does not stem from an across-the-board export expansion. Instead, imports contracted more (-12.4%) than exports (-4.2%), suggesting demand-side compression and energy import normalization rather than a structural export breakthrough.

Services exports provide the most reliable support

Services continue to act as a stabilizing anchor for foreign exchange earnings. The services surplus reached €330.4 million in January, rising 17.5% year-on-year, supported by sustained strength in IT services, transport, and tourism-related inflows. Within the first-quarter context described in the report, this segment remains the most dependable source of support compared with greater volatility risk from industrial exports.

Income flows remain a structural drain

Despite improvement, Serbia’s primary income deficit stayed elevated at €163.7 million in January. The report attributes this mainly to repatriation of profits by foreign investors. While net outflows tied to direct investment income declined, they remain structurally embedded because Serbia’s growth model is FDI-led—creating recurring external leakage through dividends and reinvested earnings.

Secondary income flows offer additional cushioning. Worker remittances reached €197.2 million, reinforcing Serbia’s reliance on remittance inflows as a counter-cyclical buffer during periods of industrial weakness or external demand shocks.

The financial account turns negative: outflows change how to read the surplus

The most critical development for assessing external risk in 1Q 2026 comes from the financial account. Serbia recorded net capital outflows of €455.5 million—an abrupt deterioration versus a near-balanced position a year earlier. This shift changes the interpretation of the current account surplus: rather than reflecting broad-based external strength, it increasingly offsets weak capital inflows and rising financial leakages.

Foreign direct investment weakened materially. Net FDI inflows fell to €55.3 million (down 76.9% year-on-year), while gross inflows halved to €135.7 million. The composition remains relatively favorable—equity investments dominate over debt instruments—but the absolute contraction signals declining investor momentum.

Portfolio flows also worsened sentiment toward Serbian assets: Serbia moved from net inflows to net outflows of €15.9 million as foreign appetite for sovereign and quasi-sovereign debt declined. In an environment shaped by higher global interest rates and increased geopolitical risk, this points to repricing of Serbian risk exposure in international markets.

The largest component of outflows came from “other investments,” particularly trade credits and deposits. Net outflows in this category reached €905.2 million due to increased corporate claims and liquidity movements—reflecting both balance sheet adjustments and precautionary liquidity positioning amid rising uncertainty about external conditions.

Reserves decline as authorities manage volatility

Foreign exchange reserves fell by €413 million, primarily linked to central bank interventions intended to stabilize the currency and manage external volatility. While reserves are described as remaining adequate, the direction of travel highlights a growing cost of maintaining macro stability when capital inflows weaken.

A balanced outside view with internal strain

Taken together, Serbia’s external position in 1Q 2026 can be characterized as externally balanced but internally strained: the current account surplus is real but not fully organic because it is supported more by import compression and services exports than by broad industrial export recovery. At the same time, declining FDI momentum and emerging capital outflows introduce new vulnerability—suggesting that future external stability may depend more on domestic demand management and services performance than on continued capital inflow support or improvements driven solely by industrial competitiveness.