The election cycle can affect the economy through several channels, and in Serbia, two are currently particularly important – political uncertainty and the easing of fiscal policy on the eve of elections.
CEVES economist Vojislav Stojanović assesses in an interview for Biznis.rs that it is not possible to reliably estimate the overall impact of the elections on economic activity at this moment. This will, as he states, largely depend on whether the parliamentary elections contribute to reducing political uncertainty and resolving the current political crisis. If uncertainty continues or further increases after the elections, it is difficult to expect a positive overall effect on the economy, regardless of the significant short-term fiscal stimulus coming through pre-election aid measures for the population.
„Political uncertainty has direct economic significance because it can lead companies to postpone investments and hiring, while households may postpone major purchases,“ explains our interlocutor.
He says that in Serbia, increased political uncertainty after the collapse of the canopy in Novi Sad coincided with a deterioration of economic sentiment, measured by the economic sentiment index published by Eurostat. This index fell from an average of 105 in the first ten months of 2024 to below 100 and has remained at that level to this day.
At the same time, the European Union average remained almost unchanged, at around 96.
„Serbia has thus fallen from a level that was nine points above the EU average to below it. The lowest value was recorded in July 2025, when the index was 88. The movement of consumer sentiment is particularly concerning. It was last significantly positive at the end of 2024, while it has been mostly negative since then, including almost the entire year 2026,“ says Stojanović.
Vojislav Stojanović / Photo: CEVES
The way uncertainty affects the foreign exchange market is also particularly important for Serbia. A recent analysis by the National Bank of Serbia shows that in periods of sharp increase in uncertainty, citizens' demand for foreign currency intensifies, which can increase depreciation pressures on the dinar.
The NBS compared three such episodes – the beginning of the pandemic in 2020, the outbreak of the war in Ukraine in 2022, and the uncertainty regarding sanctions against NIS at the end of 2025. In all three cases, a strong increase in the population's demand for foreign currency was recorded. According to the central bank's assessment, the pressures primarily arose through the channel of expectations and citizen behavior, i.e., due to an increased perception of risk.
„From this data, however, it cannot be concluded that student protests are the cause of the mentioned economic trends. CEVES has repeatedly pointed out that it does not see the problem in the protests themselves, but in deeper institutional weaknesses and the political crisis in the context of which the protests arose, along with a very uncertain international environment,“ assesses Stojanović.
Pre-election measures stimulate consumption in the short term
Another important channel relates to the easing of fiscal policy before elections, which is also evident in Serbia in the current election cycle, primarily through the budget rebalance for 2026.
„The rebalance increased the planned fiscal deficit from three to 3.5 percent of GDP. This would be above the limit of the general fiscal rule if its application were not postponed until 2029. The announced package of measures is worth around 980 million euros, or approximately one percent of GDP. According to CEVES analysis, four budget items through which pre-election measures towards the population are mostly realized have increased by about 620 million euros, while part of the total package is financed from the Share Fund,“ says our interlocutor.
He further points out that, viewed more broadly, the additional funds provided by the rebalance are predominantly directed towards transfers, subsidies, and one-off measures, while capital expenditures have increased significantly less.
„Such measures can stimulate economic activity in the short term because they increase citizens' disposable income and their consumption, which then reflects in GDP growth. However, this effect is mostly one-off and temporary. For medium-term economic growth, the question of what is missed in terms of financing due to such allocation of funds is more important. In the current rebalance, part of the additional fiscal space has also been secured by reducing or postponing certain large infrastructure projects,“ states Stojanović, emphasizing that CEVES therefore assesses that the rebalance has a primarily distributive and short-term consumer character, while its developmental and investment effect is significantly smaller.
Possible slowdown in lawmaking
The election cycle can slow down the adoption and implementation of laws, but from an economic perspective, the regulations and reforms that are postponed are more important than the number of unadopted laws.
„The postponement of technical or less significant regulations would probably not have a noticeable macroeconomic effect. However, if reforms affecting the business environment, energy, public investments, or European integration were prolonged, the consequences could be more significant,“ believes the CEVES economist.
The elections themselves, according to him, as well as a potential change of government, do not mean that the state will cease to function or that a legislative vacuum will arise. As Kori Udovički and Pavle Medić recently wrote in CEVES Stav, a modern state is more of a „tanker than a speedboat“ – its functioning does not depend on one person or a few ministers, but on the entire system of institutions and professional administration.
„In this sense, a change of government in itself does not have to represent a risk to the functioning of the state. If the new government contributes to strengthening institutions, professionalizing public administration, and increasing the accountability of the executive branch to parliament, it could also positively affect the quality of lawmaking and implementation,“ says Stojanović.
According to his assessment, a greater short-term risk is represented by a scenario in which the elections do not resolve the existing political crisis, either due to disputes over the electoral process or due to the prolonged formation of a parliamentary majority and government.
„Then the period of political and regulatory uncertainty would be extended, while the adoption of important laws and new policies could be further delayed,“ believes our interlocutor.
The budget for 2027 represents a particular risk
At this moment, the eventual delay in adopting the Budget Law for 2027 could cause more serious economic consequences.
„The election period overlaps in time with the final phase of the budget process, so the formation of a new parliamentary majority and Government could hinder its timely adoption. The risk would be greater if the formation of a new Government takes too long or if it is not possible to quickly secure a stable parliamentary majority. However, the non-adoption of the new budget does not mean that the state would cease to function. The Law on the Budget System provides for the possibility of temporary financing, which allows the continuation of regular expenditures, including salaries of public sector employees and pensions,“ says Stojanović.
The problem of temporary financing is therefore not primarily that the state would be unable to meet its existing obligations, but rather in the reduced predictability and flexibility of fiscal policy. It can hinder the initiation of new programs, investments, and other policies that should begin with the new budget year, as well as the planning of budget users and private companies that do business with the state.
According to CEVES, special attention should be paid to projects related to EXPO, considering their share in the budget. Some appropriations, such as the one for the National Stadium, have already been reduced by a rebalance, most likely due to delays and postponements of works in 2027.
„From an economic point of view, it is therefore important that the political process does not lead to a longer period of temporary financing and a standstill in the implementation of public investments and other priorities for 2027. A few weeks of delay in itself would not represent a serious macroeconomic problem, but a longer institutional standstill could become another channel through which political uncertainty is transferred to the economy,“ concludes CEVES economist Vojislav Stojanović.
