Although the political crisis threatens the economy over the short term, meeting protestors’ demands for stronger institutions and the fight against corruption could stimulate investments and growth over the long term
Since the 1990s, Serbia has had only three governments that completed their full terms. We have had seven governments since 2012, with an eighth expected to be formed in the coming weeks. On average, a government in Serbia lasts less than two years. Meanwhile, policies in Serbia have always been tied to the party that forms the government at a given time, and rarely to the government itself. Since 2012, state management has been tied to the policies of the Serbian Progressive Party (SNS) and Aleksandar Vučić. In this sense, we can say that economic policy has been consistent, despite frequent elections and government reshuffles.
It thus follows that it is unrealistic to expect the mere resignation of the prime minister to have direct consequences on economic policy. However, the reason for the resignation is likely to have certain consequences. The protests, which have been ongoing in Serbia since November 2024, led indirectly to the fall of the government, although that was not their explicit demand. Political instability, frequent blockages and strikes across Serbia shifted the government’s focus away from economic and other issues to addressing current problems in the functioning of the state. The diverting of attention away from the economy at a time when Serbia is beginning to experience economic performance issues will likely result in worse economic outcomes than expected over the short term.
The potential net outflow of FDI in 2025 could trigger a series of economic problems – from balance of payments pressures to labour market instability and a slowdown in economic growth
It is already clear that Serbia’s economic model, which is based on attracting foreign direct investments through an offer of cheap labour and high subsidies, has been exhausted. The labour force is dwindling and is no longer as cheap as it was. Under these circumstances, investors who arrived during the previous period are finishing their economic cycles and either leaving or considering leaving. The positive aspect is that net FDI inflows remain high for now. The downside is that, according to 2024 figures, net FDI outflows are slowly approaching the level of net inflows. It is possible that Serbia will experience a net outflow of FDI that exceeds the inflow for the first time in 2025, which could trigger a range of economic problems – from balance of payments pressures to labour market instability and an impact on economic growth. Another fact that also doesn’t help is that EU countries – which represent Serbia’s key foreign trade partners – are facing their own economic difficulties.
Under such circumstances, political instability over the short term could lead to a slowdown in investments and economic growth. However, considering that the demands of the protests are related directly to the fight against corruption and the functioning of institutions, fulfilling these demands could have a positive impact on investments and economic growth. Coupled with a change in the growth model, this could contribute to Serbia’s sustainable economic growth over the medium term.
