This report does not constitute a rating action.
Serbia's economy has been one of the fastest growing in Central and Eastern Europe and the Western Balkans in the last two years. The Statistical Office of the Republic of Serbia estimates that real GDP expanded by 3.9% in 2024, the highest rate in the region. However, moderating domestic and foreign direct investment (FDI) growth amid ongoing protests could weaken Serbia's otherwise strong prospects.
What's Happening?
Serbia is seeing one of its largest protest movements in decades. It began several months ago following public outrage over a deadly infrastructure collapse in Novi Sad. While initially centered on government accountability, the protests have evolved into a broader movement demanding anti-corruption measures, institutional reforms, and greater transparency. What marks these protests is their sustained momentum--lasting over three months--and the broad public support from students, workers, and professionals. This pressure has already forced high-profile resignations, including that of Prime Minister Miloš Vučević. While demonstrations have been largely peaceful, their scale and frequency remain significant.
Investment growth weakened in the last quarter of 2024. It slowed to a mere 1.2% year-on-year after averaging a high 9.6% in the first three quarters. The Serbian authorities also note that net FDI inflows in the first two months of 2025 have fallen to a six-year low. There could be a lot of reasons for this, including global and regional geopolitical uncertainty and protracted weakness in key trading partners in the EU, including Germany. Weaker investor sentiment and softer public capital spending amid domestic political volatility might also be part of it.
Why It Matters?
Investment, including FDI, has been a cornerstone of Serbia's growth model in the last decade. Net FDI inflows have been averaging around 6% of GDP, helping to boost employment, productivity, and exports (chart 1). They have also overfunded Serbia's current account deficits since 2015, allowing the authorities to maintain a stable dinar exchange rate and accumulate high foreign exchange reserves. Reserves reached a historical high of €29.3 billion at end-2024.
Chart 1
Prolonged instability could undermine investor confidence and weigh on Serbia's medium-term growth prospects. Private investment accounts for over 50% of total investment in Serbia. This suggests that the ambitious public investment program--of around 25% of GDP over the next four years and which partly focuses on Expo 2027 in Belgrade--might not be able to offset a persistent weakening of private investment.
What Comes Next?
We expect government negotiations with student-led protesters will continue, but if no resolution is reached then snap elections are likely. A win for the current administration could reinforce its policy mandate but might fail to quell protester demands, prolonging tensions. Until then, political uncertainty will persist.
While the economy is more resilient to shocks than in the past, the impact of protracted domestic volatility on Serbia's growth prospects remains to be seen. Healthy GDP growth prospects supported by strong macroeconomic management, as well as sizable policy buffers including modest public debt of just 40% of GDP, underpin our 'BBB-' sovereign rating on Serbia.
| Primary Credit Analyst: | Amr Abdullah, London 2071760857; amr.abdullah@spglobal.com |
| Secondary Contacts: | Karen Vartapetov, PhD, Frankfurt + 49 693 399 9225; karen.vartapetov@spglobal.com |
| Christian Esters, CFA, Frankfurt + 49 693 399 9262; christian.esters@spglobal.com | |
| Additional Contact: | Sovereign and IPF EMEA; SOVIPF@spglobal.com |
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