Pancevo Refinery, Smederevo Steel Curb Serbia's Industry
MAT: Serbia's economy grew 3.5 percent in the first seven months of 2026, but industrial output fell 2.3 percent in July under the weight of problems in Pancevo and new EU quotas for Smederevo.
Serbia’s real gross domestic product grew 3.5 percent year on year in the first seven months of 2026, according to the September issue of Macroeconomic Analyses and Trends (MAT), which domestic media reported on September 7 and 8. Behind that headline number sits a detail that earlier reports on wages and prices did not cover: industrial production fell in July, and the drop has a name and an address, the Pancevo Oil Refinery and the Smederevo steel mill.
Cumulatively, from January through July, industrial output is up just 0.3 percent from the same period in 2025. Manufacturing grew 1.3 percent over those seven months, while mining (down 0.1 percent) and electricity, gas, steam and air conditioning supply (down 4.8 percent) were both in negative territory. Manufacturing, in other words, is the only sector keeping the cumulative result in positive territory.
Why July came in below average
In July alone, industrial production fell 2.3 percent year on year. By sector, mining posted three percent growth, but manufacturing (down 1.6 percent) and energy supply (down 8.8 percent) dragged the overall result down. MAT describes this as a return to the “track of stagnation,” a period without meaningful growth or decline, since manufacturing broke a streak of five straight months of rising output in July.
Five industries made a positive contribution in July, led by the production of motor vehicles and trailers, followed by machinery and equipment, electrical equipment, chemicals and non-metallic mineral products. Their combined contribution of 2.2 percentage points was entirely wiped out by just three areas: production of coke and refined petroleum products, pharmaceutical production and basic metals production.
The Pancevo refinery is still struggling to operate
Production of coke and refined petroleum products subtracted 1.3 percentage points from manufacturing as a whole in July. The cause is well known: US sanctions on Russian ownership in NIS have restricted supply and disrupted the Pancevo Oil Refinery’s ability to run continuously. The economists behind MAT put it plainly in the September report:
The problem with the operations of the Pancevo Oil Refinery has not been resolved. It is still struggling to operate.
The same report notes that this assessment was known well in advance. As early as late 2025, MAT predicted that manufacturing would operate under less favorable conditions in 2026 precisely because of the refinery, even though output in March and April 2026 briefly exceeded even the most optimistic forecasts.
Smederevo takes a fresh hit from Brussels
The other burden on basic metals production comes from the Smederevo steel mill, owned by a Chinese group. Tighter European Union protectionist measures took effect on July 1, 2026, an upgrade to the system of autonomous quotas the EU has applied to steel and iron imports from Serbia since 2019.
The duty-free quota for steel exports to the EU has been cut in half, from about 820,000 to about 410,000 tons a year, roughly a fifth of the mill’s total output. At the same time, the tariff on volumes above that quota has doubled, from 25 to 50 percent, making exports beyond the limit economically unviable. The new rules also introduce stricter origin checks, requiring proof of where the steel was first melted and cast, a measure MAT says is designed to stop Chinese and other companies from routing production through factories in third countries to sidestep European barriers.
Foreign trade is moving in the right direction
Outside of industry, the picture is more favorable. In the first seven months of 2026, exports covered 82.7 percent of merchandise imports, up from 79.4 percent in the same period of 2025. According to Eurostat data, Serbia ranked among Europe’s leaders for year-on-year growth in real retail trade turnover over that period. Net wage growth in the first half of 2026 came to 8.2 percent in real terms, well above inflation, which the report says gave domestic consumption an additional boost.
Two inflation figures, and why they do not match
Two separate measures need to be kept apart here. Serbia’s national consumer price index stood at 2.7 percent year on year in June and 1.9 percent in July. That is the domestic index and is not directly comparable to the figures Eurostat publishes for EU member states.
For comparison with the EU, the harmonized index of consumer prices (HICP) is used, which for Serbia came to three percent in June and 2.2 percent in July. In the European Union, HICP over the same period stood at 2.9 percent in June and three percent in July, and in the eurozone at 2.8 and 2.9 percent. In other words, Serbia’s HICP inflation was higher than the EU average in June but lower in July. Among the EU’s 27 member states, six had lower year-on-year inflation than Serbia in July: Sweden, the Czech Republic, Hungary, Denmark, Estonia and Malta. The highest rates in July were recorded in Romania (8.2 percent), Lithuania (5.4 percent), and Bulgaria and Cyprus (4.4 percent each).
MAT frames the GDP growth achieved since the start of 2026 as a result that puts Serbia among Europe’s faster-growing economies, adding that every sector except energy supply posted real growth in activity. That assessment, however, does not change the picture within industry itself: its two biggest individual sources of trouble, the Pancevo Oil Refinery and the Smederevo steel mill, remain constrained purely by external limits, sanctions in one case and EU quotas in the other, and both stay open questions for the rest of 2026.
