II – Serbia’s Economic Convergence with the EU
Within the EU enlargement policy, the process of economic convergence is not assessed solely through the dynamics of economic growth or formal alignment with the EU acquis, but rather through the fulfilment of the economic fundamentals more broadly. Progress in these areas constitutes the key reference framework for assessing the readiness of candidate countries and the pace of their convergence towards the Union.
In this context, understanding Serbia’s position regarding these economic fundamentals requires an analysis of concrete socio-economic areas and indicators that reflect the functioning of a market economy and the capacity of the economy to cope with competition within the EU. An assessment of Serbia’s position relative to the European Union, based on the Vienna Institute for International Studies Inclusive and Regional Integration Index (IRI), enables precisely such an approach, as it provides a combined view of income levels, productivity, labor market performance, institutional quality, and the degree of economic integration.
Convergence Timeline by Area
| Area of Comparison | Years until Convergence* |
|---|---|
| Economic | 35 |
| Social | 51 |
| Health | 100+ |
| Education | Diverging |
| Environment | Diverging |
| Governance | 100+ |
| Digitalization | 3 |
| Infrastructure | 100+ |
Estimated time needed to reach the EU average if current trends continue
Source: converge2eu (2025), Interactive Database and Dashboard, Vienna Institute for International Economic Studies (wiiw)
Income and Productivity
Serbia continues to lag significantly behind the EU in the area of income and productivity. GDP per capita in purchasing power standards (PPS) stood at 46% of the EU average in 2022 and reached 51% in 2024, highlighting a persistent wealth disparity.
The productivity gap exhibits a high degree of persistence, failing to narrow at the pace expected for a developing economy. Specifically, the catch-up process is uneven:
- Average wages relative to the EU average increased by 15 percentage points between 2017 and 2024
- Average output per employee (labor productivity) increased by only 10 percentage points over the same period
This suggests that wage growth is decoupling from efficiency gains, potentially undermining long-term competitiveness.
Although relatively solid economic growth has been recorded in recent periods, a significant share of new employment has been generated in sectors characterized by low wages and limited productivity growth potential. These jobs are predominantly concentrated in lower value-added activities. Importantly, this employment pattern is not incidental but reflects the direct consequences of prevailing policies and institutional limitations that have shaped the sectoral allocation of investment and labor.
Labor Markets and Human Capital
Outcomes in the area of labor markets and human capital provide further evidence of constraints on convergence. While employment has increased in recent years, Serbia’s overall labor force participation remains low, at around 56%, with a persistent gender employment gap of approximately 11 percentage points, indicating significantly weaker labor market participation of women relative to men compared to EU norms.
These challenges are compounded by adverse demographic trends—both negative natural increase (reflecting low birth rates and population ageing) and high and sustained emigration. These continue to erode both the size and skill composition of the labor force.
Education and Skills
Indicators related to education and skills formation point less to uniformly low educational outcomes than to structural weaknesses in human capital accumulation and utilization.
- Public spending on education in Serbia amounts to around 3% of GDP, compared to 4.8% of the EU average
- This constrains the system’s capacity to ensure broad access to quality education and especially to reduce regional disparities
While international assessments such as PISA indicate below-EU-average performance, these results should be interpreted with caution, as national averages mask substantial territorial and socio-economic gaps. More importantly, persistent skills mismatches and limited adult learning weaken the labor market’s role as a transmission channel through which growth translates into convergence.
Serbia has a history of very pronounced regional inequalities which underscores the importance of the levelling effect of the education system. These barriers of the educational system are inherent consequences of income inequality which constitutes an additional structural impediment to Serbia’s convergence process.
Regional Disparities
Pronounced regional disparities constitute a long-standing, historically inherited feature of Serbia’s development trajectory. In recent years, however, prevailing policies have tended to reinforce rather than mitigate these inherited imbalances.
Income growth, employment opportunities, and higher-productivity activities remain heavily concentrated in Belgrade and a limited number of urban centers, while large parts of the country continue to lag behind in terms of earnings, labor market outcomes, and access to economic opportunities.
Within the Social dimension of the IRI, inequality is measured by the share of post-tax income accruing to the top 10% of adults. According to this indicator, Serbia is assessed as diverging from EU benchmarks, indicating that recent income gains have been disproportionately captured by higher-income groups. As a result, convergence with the EU at the national level increasingly masks widening internal disparities, reinforcing the conclusion that Serbia’s convergence constraints are not only macroeconomic, but also social and regional in nature.
Financial System
Serbia’s financial system is characterized by a relatively stable banking sector, but also by limited financial depth:
| Indicator | Serbia | Context |
|---|---|---|
| Capital adequacy ratio | >20% | Well capitalized |
| Non-performing loans | 2.5% (2024) | Historical low |
| Domestic credit to private sector | 45-50% of GDP | Well below EU levels |
At the same time, financial intermediation remains shallow and the system is overwhelmingly bank-dominated. An underdeveloped capital market and the near absence of a corporate bond market, combined with restricted access to long-term financing—particularly for small and medium-sized enterprises—constrain the investments necessary for structural transformation.
This combination of stability and shallowness suggests that the key reform challenge lies not in preserving financial stability, but in broadening financing sources and improving capital allocation.
Economic Integration with the EU
In the area of economic integration with the EU, Serbia records relatively more favorable outcomes, particularly regarding trade integration and digitalization. Digitalization stands out as the only area in which Serbia has achieved convergence by most of the indicators toward EU levels.
However, progress is highly heterogeneous. In areas of infrastructure and environmental protection, the gap remains substantial. This dichotomy confirms that convergence is determined by the weakest segments of the system rather than by isolated success stories. For this reason, the Growth Plan emphasizes parallel progress across multiple areas, while the Reform Agenda seeks to link investments and reform measures into a coherent package.