Serbia's investment cycle is increasingly financed by the state as foreign direct investment falls to its lowest level in more than a decade.
- Building permits rose 31% year on year in the first eight months of 2026, driven by EXPO 2027 works and commercial and residential projects.
- Public capital expenditure reached about 6.1% of GDP in the first eight months of 2026, down from 7.0% in 2025 and 7.5% in 2024.
- Inward foreign investment fell to about 2.8% of GDP, from 4.0% in 2025 and 6.5% in 2024.
- New foreign equity accounts for only about a third of inward flows, with reinvested earnings and debt making up the rest.
- Rising wages and real dinar appreciation are eroding the cost advantage of export-oriented manufacturing.
Serbia's investment cycle is increasingly financed by the state, as foreign direct investment (FDI) has dropped to its lowest level in more than a decade. Construction activity now depends more heavily on public projects and preparations for EXPO 2027, according to figures cited by the business portal Serbia Business.
Construction growth accelerates
The value of building permits rose by 31% year on year in the first eight months of 2026. Growth was 6% in 2025 and 9% in 2024. Building construction has strengthened markedly, supported by EXPO-related works and by commercial and residential development. Civil-engineering activity has been more subdued.
The financing mix behind this investment has changed. Public capital expenditure was equivalent to about 6.1% of GDP in the first eight months of 2026, after 7.0% in 2025 and 7.5% in 2024.
Inward foreign investment moved in the opposite direction. It fell to about 2.8% of GDP, from 4.0% in 2025 and 6.5% in 2024.
Fresh foreign equity weakens
New foreign equity inflows have weakened most. A larger share of inward investment now consists of reinvested earnings and debt taken on by foreign-owned companies that already operate in Serbia. New equity accounts for only about a third of inward flows. Profit repatriation by existing foreign investors has also increased.
Private investment faces headwinds
The shift matters because Serbia's earlier investment model relied heavily on foreign capital to expand export-oriented manufacturing. Rising wages and real appreciation of the dinar are reducing the cost advantage of labor-intensive production, while investment activity in key EU markets remains weak.
Public capital spending can keep construction and overall demand strong through 2027, according to the source. The next phase will depend on whether those projects attract new private investment. Without a recovery in fresh FDI, the investment cycle becomes more dependent on the fiscal position and on the state's ability to keep financing large projects.
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Frequently asked questions
Why is Serbia's investment increasingly dependent on the state?
Foreign direct investment has dropped to its lowest level in over a decade, while public capital spending supports construction and overall demand. Public projects, including EXPO 2027 preparations, now carry much of the investment cycle.
How much has foreign investment in Serbia declined?
Inward foreign investment fell to about 2.8% of GDP in 2026, compared with 4.0% in 2025 and 6.5% in 2024. Fresh equity inflows have weakened the most.
What is driving the construction boom in Serbia?
Building permits rose 31% year on year in the first eight months of 2026, supported by EXPO-related works and commercial and residential development. Civil-engineering activity has been more subdued.
What could determine the next phase of Serbia's investment cycle?
According to the source, public spending can keep demand strong through 2027, but the next phase depends on whether these projects attract new private investment. Without a recovery in fresh FDI, the cycle will remain more reliant on fiscal capacity.
