Serbia’s trade deficit narrows in early 2026, but import contraction—not export momentum—does the heavy lifting

Serbia’s external trade performance in early 2026 offers investors a mixed signal: headline figures point to stabilization, while the underlying drivers suggest the economy is still adjusting rather than accelerating on export competitiveness. The trade deficit narrowed by approximately 24.9% to €936 million in January–February, and export coverage of imports improved to around 85% from 80.7% a year earlier.

However, the improvement is not primarily the result of stronger export expansion. Total exports rose only modestly—up 1.6% year-on-year to €5.29 billion—while imports fell faster, down 3.5% to €6.23 billion. That means the external balance improved mainly because Serbia imported less, particularly intermediate and energy-related inputs, rather than because Serbian products gained broad-based market share.

Automotive leads export growth as production ramps up

The composition of exports helps explain why investors are watching closely for whether this stabilization can turn into sustained growth. The most prominent driver is automotive: automotive exports reached about €827.9 million in the first two months of 2026, representing 15.6% of total manufacturing exports. The incremental contribution from this sector alone exceeds total growth in manufacturing exports, underscoring how concentrated current momentum is.

This surge is linked to increased output at the Kragujevac plant, where the Fiat Grande Panda platform has moved into full-scale manufacturing. By integrating that production into European value chains, Serbia has been able to capture more demand in specific segments of the automotive market, particularly in Italy and Germany.

Capital goods rise, but traditional sectors lag

Beyond autos, there are signs of structural repositioning within Serbia’s export base. Capital goods exports increased by 22.4%, adding €268.6 million in additional export value—an indicator that some activity may be shifting toward higher-value manufacturing segments aligned with broader European industrial supply-chain trends.

Still, the transition appears uneven. Traditional export areas—including basic metals, chemicals, and food products—show weaker performance, with some exports declining amid constraints from external demand and domestic production challenges. The result is a dual structure: a small number of high-performing sectors drive growth while others lag behind.

Concentration risk meets EU demand exposure

This unevenness matters for risk assessment because concentration can amplify shocks. A more diversified export base can cushion downturns across sectors; a concentrated one is more vulnerable to changes within a few industries—especially when automotive is already dominating results.

Geography adds another layer of exposure. The European Union remains Serbia’s main trading partner at 59.9% of total trade flows. Germany leads with a 13.4% share, followed by Italy and China at 11.7% each. Such concentration reflects deep integration into European value chains but also ties Serbia’s outcomes to the health of EU industry.

Germany’s industrial slowdown—described as weak orders, deteriorating business sentiment, and rising unemployment—has direct implications for sectors such as automotive, machinery, and intermediate goods. As German manufacturers adjust production and investment plans, those changes propagate through supply chains that include Serbian suppliers.

Bilateral shifts highlight sector-driven trade balances

Italy’s trade position has shifted in early 2026: Serbia recorded an approximately €70.5 million trade surplus with Italy compared with a deficit a year earlier. The change is largely attributed to automotive exports tied to new production capacity.

China plays a different role by acting both as a trading partner and an investor source for manufacturing and infrastructure development in Serbia—while imports from China contribute to Serbia’s trade deficit. This dual function illustrates how trade and investment flows can reinforce each other even when near-term balance-sheet effects are negative.

Sustainability hinges on whether import compression reflects weakness

The decline in imports that underpins the improved trade balance reflects multiple factors: reduced energy import demand partly due to lower prices and improved domestic production; and weaker industrial activity lowering needs for imported intermediate goods where sectors are contracting.

This raises questions about sustainability. If import compression stems from weaker investment and production rather than stronger competitiveness abroad, then today’s balance improvement could be temporary rather than structural.

The interaction with broader external accounts reinforces that caution: improvements in the current account driven partly by the trade balance are offset by declining foreign direct investment inflows. In other words, the adjustment appears linked more to reduced economic activity than to an acceleration in competitiveness or new investment-driven growth.

Policy and regulation will shape medium-term competitiveness

Looking ahead, several factors will influence how Serbia’s trade structure evolves: the trajectory of European demand; domestic industries’ ability to adapt and diversify into new sectors and markets; and regulatory developments affecting cost structures.

A key regulatory risk is the EU’s introduction of CBAM (carbon border adjustment mechanism), which will raise costs for exports from energy-intensive industries such as steel, cement, and chemicals due to carbon emissions-related charges. While this could encourage a shift toward higher-value and less carbon-intensive exports, it also creates transitional challenges for firms adjusting their production footprints.

Investment implications: opportunity in autos and capital goods—vulnerability in concentration

For investors and lenders, early-2026 data highlights both opportunity and fragility. Automotive expansion points to sectors aligned with European industrial strategies that may continue attracting support as production scales within EU-linked value chains. Capital goods growth also suggests room for higher-value positioning.

At the same time, reliance on a concentrated set of exporting sectors—and dependence on EU industrial conditions—introduces vulnerabilities that must be weighed carefully under tighter global liquidity conditions and heightened risk sensitivity that can influence lending patterns toward what banks see as more resilient exposures.

The policy response will further determine whether stabilization becomes durable: measures supporting export diversification, infrastructure improvements, and business-environment upgrades can strengthen the external sector; maintaining macroeconomic stability remains central for investor confidence while managing external risks.

Overall, Serbia’s early-2026 trade picture reflects a transitional phase rather than a clear break into broad-based export acceleration. The narrowing deficit provides stability signals—but investors will likely focus on whether import compression gives way to wider export gains across more sectors so that future improvements rest on competitiveness rather than reduced demand for imported inputs.