GDP growth ticks up in the second quarter

Economic momentum strengthens in Q2: GDP grew 2.1% in Q2 on an annual basis, above the flash estimate of 2.0% and Q1’s 1.9% print. On a seasonally adjusted quarter-on-quarter basis, GDP rebounded, growing 1.1% in Q2 and contrasting the previous quarter's 0.6% decrease.

Spending drives the improvement: Private consumption growth accelerated to 3.0% year on year in Q2, up from a 1.6% expansion in Q1, thanks to solid gains in real wages and a tighter labor market. Moreover, government spending accelerated to a 3.7% expansion in Q2 (Q1: +0.5% yoy). That said, fixed investment contracted 4.0% in Q2, marking the worst result since Q2 2020 (Q1: -0.8% yoy). This downturn reflects a decline in construction activity, after sizeable construction projects under the National Investment Plan in 2023 and H1 2024 came to an end. On the external side, exports of goods and services growth fell to 4.6% in Q2, marking the worst result since Q1 2024 (Q1: +8.6% yoy). Lastly, imports of goods and services growth waned to 9.8% in Q2 (Q1: +11.3% yoy).

GDP outlook: Our panelists expect the economy to gain further traction in H2 as strong real wage gains aid household consumption. Still, over 2025 as a whole, GDP growth is forecast to moderate from 2024 as both domestic demand and exports cool.

Panelist insight: Mate Jelic, analyst at Erste Bank, said: “Private consumption should continue to support growth, due to double-digit nominal wage growth and strong consumption loan growth. Regarding investments, the question is to what extent can government infrastructure projects, related to the Expo 2027, replace and soften the blow from private investments decline and weaker FDI flows. Due to relatively solid industry performance in recent months, we expect another increase in inventories which could continue to have a strong positive effect on headline growth. On the external side, heightened global uncertainty continues to cast a shadow over external demand and general consumer and business sentiment” Analysts at the EIU commented: “GDP growth this year is likely to be slower than previously expected, at 2.8%, but will then accelerate to an average of around 4% in 2026-29 as the economy continues to catch up from its relatively low starting point and gets a further boost from the specialised Expo taking place in Belgrade in 2027.”

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