Vienna Institute projects Serbia’s economic growth at 2%, lowest in Western Balkans

Despite a challenging international environment and ongoing geopolitical risks, the economies of Central, Eastern and Southeastern Europe (CESEE) are showing relatively robust growth. However, in Romania, Slovakia and Hungary, high budget deficits, Germany’s industrial weakness and domestic problems are weighing on the economy. Economic performance is also weak in Russia and Ukraine, according to the main findings of the new autumn forecast by the Vienna Institute for International Economic Studies (wiiw), which covers 23 countries in the region.

As for the six Western Balkan countries, they continue to perform well, with average growth of 2.5% in 2025 and 3.4% in 2026, although Serbia will experience a decline in growth in 2025 - to just two percent. This is the lowest growth rate among the Balkan countries for this year.

However, the forecast for the next two years is somewhat more optimistic - the Serbian economy could grow by 3.5% in 2026 and a full four percent in 2027.

From a general perspective, the economic model of the eastern EU countries is undergoing a fundamental structural change.

– While private consumption has been the main driver of growth in the EU member states in Central and Eastern Europe so far, we expect investment by private companies and the public sector to gain importance, given the cooling of real wage growth – says Richard Grieveson, deputy director of the Vienna Institute and lead author of the autumn forecast.

The sharp increase in defense spending among NATO countries in the region is also supporting economic growth. According to the Vienna Institute, these countries are expected to have an additional average annual GDP growth effect of 0.2 to 0.3 percentage points in the coming years, with nations such as Poland and the Baltic states potentially benefiting even more from increased defense spending.

“Eastern Europeans will benefit economically from Europe’s rearmament, as they have traditionally had strong defense industries. This could help them modernize their industrial base and successfully navigate the transformation towards an innovation-led growth model,” explains Grieveson.

Overall, the Vienna Institute forecasts average growth of 2.2% for the EU member states in the region in 2025, a marginal downward revision of 0.1 percentage point compared to the summer. In 2026, it is expected to accelerate to 2.6% - again a slight downward revision, this time of 0.2 percentage points. This means that these countries are likely to continue their economic catching-up process this year and next, growing significantly faster than the eurozone (2025: 0.9%; 2026: 1.4%).

The Visegrad Group countries - Poland, the Czech Republic, Slovakia and Hungary, as well as Slovenia, will expand by an average of 2.5% in 2025, and their growth will accelerate to 2.9% in 2026. Poland remains the leader among the eastern EU members, with economic growth of 3.5% in both 2025 and 2026.

Croatia and Bulgaria follow with around three percent growth this year and next, while the outlook for Romania has deteriorated significantly (2025: 0.8%; 2026: 1.2%).

Turkey will grow relatively strongly both this year and next (2025: 3.4%; 2026: 3.9%).

However, for war-torn Ukraine, the outlook is increasingly bleak: growth is expected to be just two percent in 2025 and three percent in 2026, although much will depend on how the war progresses. Russia is heading towards a state of near stagnation, due to the central bank’s restrictive monetary policy and lower oil prices (2025: GDP growth of 1.2%; 2026: 1.4%).

Vienna Institute for International Economic Studiese

Richard Grieveson