CEVES Newsletter
July 2026
Dear friends, partners and colleagues,
In the second CEVES newsletter this year, we comment on the economic growth assumptions underpinning Serbia's new June Fiscal Strategy, as well as the difficulties with the introduction of CBAM, which has been in effect since the beginning of the year.
For some time now, we have been hearing enthusiastic official comments about accelerating economic growth, which seems to be starting as early as the first quarter of the year. In the Observatory section, we briefly explain why we do not see grounds for this optimism. The seemingly slight increase in performance in the first quarter is due to the low base from last year, and the fact that various forms of government spending, which are constantly announced, may accelerate growth to 3% by the end of the year does not mean it will be sustainable in the medium term. We explain in more detail Here.
In the section „View“ we comment on our initial impressions from delving into the topic of green industrialization – which we plan to focus on a bit more in the coming period. We see that the EU has fallen into significant politico-economic problems in this area and is late with many decisions. However, this should not be an excuse for inaction at home. In the absence of timely solutions and a credible green industrialization strategy, we are leaving our future in the hands of others. The economy is already paying the price of uncertainty and future costs, especially exporters (both small and large) and energy-intensive sectors. A credible strategy requires credible governance – and the latest blow to the RSJP, which we also comment on, only confirms that we will have to wait for it, hopefully, briefly. As for CBAM itself-as far as it is concerned, we will overcome it, but it is only the first test. We held a conference on this, which we discuss in the last section of the newsletter.
We wish you a pleasant holiday!
CEVES Observatory
The Fiscal Strategy predicts an acceleration of economic growth from 2.1% in 2025 to 3.1% in 2026 and further to 4.5% next year and 3.7% in the following two years. While the Fiscal Council considers these assumptions to be slightly optimistic, based on available data, CEVES does not see the basis for such an optimistic forecast . The growth estimate of 3.2% for Q1 2026 primarily reflects the low base from Q1 2025, while seasonally adjusted data indicate a pace closer to 2-2.5% annually. Furthermore, the structure of growth is narrow and difficult to explain: the largest contributions to growth come from trade, professional services, and the state sector, which is difficult to reconcile with the fact that the only real driver of growth is private consumption. Of what? Imports are growing relatively slowly. There is also no visible growth in production capacities. The decline in registered employment, which has been ongoing since September 2025, continued in 2026 and is accelerating further, further limiting the scope for private consumption to become a more sustainable source of acceleration.
Investments and exports confirm that the basis for growth is narrowing. Gross fixed capital formation increased by only 1.4% in Q1 2026 and remained practically at the Q1 2024 level, despite an increase in state capital expenditures of about 5% (excluding the payment for Rafale aircraft). Apparently, private investments are falling (for which statistical data is two years late). Foreign direct investment (FDI) in January-April was 44% lower than a year earlier, when the trend of their decline began sharply. Today, they are about two-thirds lower than in the same period in 2024. Goods exports excluding electricity increased in January-April 2026 by 5.1% in real terms, or 10.7% in nominal terms, but motor vehicles alone contributed 5.3 p.p. to real growth. Without this sector, real goods exports would be slightly negative. The value of services exports slowed to 3.8%, with a weakening contribution from ICT. The latest issue of MAT (Macroeconomic Analyses and Trends) estimates that GDP growth in the first five months of 2026 was 3.6%. The presentation of their analysis discusses the industry in great detail, while the production decomposition of growth itself shows that it has only a negligible contribution to overall growth, with the broad category of „other services“ (2 p.p.) and „trade“ (0.6 p.p.) appearing as the main drivers, without further explanation. Given the access to information it has, it would be very useful if MAT could explain in detail both the structure of growth of these „other services“ and the link between GDP movements viewed from this unusual production side, and viewed from the consumption side where the only growing component is household consumption. This can explain lively retail sales, but nothing else.
See the detailed text here.
Economic sentiment: the EU and Serbia
Economic sentiment and its components also do not indicate that the economy is on the path to recovery. The overall index has been falling since the beginning of the year: in the first four months, it largely followed European sentiment, influenced by the worsening geopolitical circumstances in the Middle East, but in May and June, the trajectories diverged sharply; while sentiment in the EU is slightly recovering, in Serbia it is recording a new decline. Sectoral components also do not present a more favorable picture: only retail trade is above zero, while other components are negative, although their decline has largely stabilized.
Finally, this analysis further confirms that the projected growth relies increasingly on consumption, public spending, EXPO, a better agricultural season, and the acceleration of one export pillar – factors that can temporarily maintain growth above the 2025 results, but do not show a broader investment, export, and productive base for more sustained acceleration.
CEVES Stance – „Inaction“ and Punishment
Since the beginning of the year, CBAM (the EU mechanism for taxing the carbon footprint of imported goods) has been in effect. The EU is late in concretizing adopted strategies, including the adoption of operational regulations. However, this should in no way be an excuse for our government, which, by delaying its actions , further contributes to the damage that uncertainty brings to our exporters. Perhaps someone hopes that if they wait long enough, the Green Agenda will „disappear.“ It will not.
It is undeniable that intra-European pressures are „softening“ the implementation of the Green Agenda, but this is an additional reason for Serbia to focus not only on adopting the necessary regulations but also on a green industrialization strategy. This would not only help the Serbian economy prepare and adapt but, by incorporating proactive goals and actions, would also direct EU decision-making in the interest of our economy – primarily, in securing funds for the long-overdue new cycle of energy investments.
Currently, the economy is paying the price for inaction, not only the large companies that are now directly affected but also the smaller ones, which the authorities constantly forget. (For now, they resort to installing solar panels – despite all the incomprehensible difficulties the state imposes on them in this regard – so that their products remain acceptable to European partners.) Support for the decarbonization of the economy in Serbia primarily relies on programs of international financial institutions and development partners, while domestic programs remain limited, fragmented, and insufficiently focused on the systemic needs of companies.
The question particularly arises as to who will pay the price-for the non-decarbonized EPS when it enters the EU ETS system? A realistic and credible strategy would also facilitate reaching a reasonable agreement with the EU on the trajectory and support for EPS's entry into the ETS system. Otherwise, there is a real threat that it will reach 2-3 billion euros annually, as early as 2030. However, for the credibility of any strategy, professional and truly independent management is necessary, ensuring that the strategy is of high quality, adequately financed, and respected even after „the next elections.“ We will have to wait for that, hopefully not for long.
For more information, visit link
Activities and announcements
1. Conference „CBAM is just the first test: Why Serbia needs a green industrial policy?“
The conference was held on the occasion of the publication of the report: „CBAM Readiness and the Green Industrial Transition in Serbia“.
The event brought together representatives of the economy, institutions, and experts to discuss that Serbia might pass the CBAM test, but it is still far from a real green industrial policy. According to the Report, exports of industrial CBAM goods from Serbia to the EU in 2025 amounted to approximately 1.44 billion euros, with the highest exposure in iron and steel and aluminum, and the net cost of CBAM for 2026 is estimated at around 120 million euros.
Participants agreed that in the short term, the biggest problem is the verification of emission data that companies submit to EU buyers, while in the long term, the key challenges are the insufficiently developed green industrial policy and the slow pace of the energy transition – with a warning that the eventual inclusion of EPS in a system equivalent to the EU ETS could pose a significant threat to the economy, households, and public finances.
The conclusion is that Serbia cannot wait for European aid to solve domestic operational gaps, and the green transition must be elevated to a higher political level.
2. Help us make MSP Kompas better
At the end of September 2026, we are launching a new MSP Kompas, a platform for analyzing the competitiveness of the domestic SME economy in Serbia. Until then, we will conduct user testing and collect feedback to help us improve the platform.
The goal is to enable various users to quickly obtain useful answers about the structure, performance, and development needs of the economy as a whole, or by segment.
Therefore, if you are willing to help us and contribute to the development of the MSP Kompas platform, write to us at office@ceves.org.rs with the subject “TEST: MSP Kompas”.
Reaction: an additional major blow to RSJP
View last newsletter is that new regulations have once again circumvented alignment with the EU acquis. Meanwhile, the long-time director of RSJP, Bojana Tošić, was dismissed without explanation. Kori Udovički further reacted to this in the text „Dismantling of the Republican Secretariat for Public Policies – the beginning of the end“published in the weekly Vreme. Dismantling is not a sign of the regime strengthening, but of its deepening crisis. The text recalls two key contributions of RSJP – the introduction of regulatory reform based on public policy analysis and the establishment of a system for planning and monitoring the implementation of Government programs. The text concludes that restoring functional institutions will be a long and difficult task for any future government, and appeals to preserve the expertise of the people who worked on these tasks.
You can read the full text at the following LINK.
CEVES's new project: strengthening democratic accountability in the oversight of large public investments in Serbia
Over the next 12 months, we will monitor 20 high-risk infrastructure projects – including projects related to EXPO 2027, WBIF co-financed projects, and projects implemented under special legal regimes – in order to provide the public with as much information as possible, as well as to identify where institutional responsibility is lost and how planning, financing, and implementation processes can be more transparent and secure.
The project is implemented by CEVES in partnership with the BIRN network.
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