In 2026, we expect global economic growth to continue, albeit with persistent risks tied to geopolitical tensions and tariff uncertainty. Expansive fiscal policies, particularly those targeting infrastructure and green initiatives (Europe), are set to remain in place. Real wage growth continues to support personal consumption, contributing to a more stable inflation trajectory than observed historically.
In the Adria region, we see an improvement in household financial sentiment over the next 12 months. Negative attitudes toward savings and major purchases are fading. Household savings are increasing across the region compared to last year, alongside a rise in housing loans. Capital market participation is also growing, with momentum in government bonds in Slovenia, Croatia, and North Macedonia, as well as through IPOs on the Zagreb Stock Exchange. These developments point to strong consumer confidence and a stable, liquid banking sector.
We maintain a positive outlook for the region’s economic trajectory. Solid GDP growth is expected across the Adria region, with Serbia and North Macedonia anticipated to lead in 2026. The main drivers of this growth will be personal consumption and foreign direct investment, particularly in the renewable energy sector. However, labour shortages continue to represent the most pressing structural challenge, especially in Slovenia and Croatia. Although labour productivity is improving, it remains significantly below the EU average. On average, productivity in the Adria region is approximately three times lower than in the EU: while an average EU worker generates roughly EUR 80,000 of added value per year, in North Macedonia this figure is closer to EUR 25,000. Beyond export revenues, personal remittances from abroad continue to play a vital role in regional economies, accounting for roughly six percent of GDP on average. Our analysis suggests that a one percentage point increase in the remittance-to-GDP ratio correlates with a 0.37pp rise in GDP. Given that personal consumption still represents around 50% of GDP in the region, these inflows are a key contributor to broader economic growth.
On the inflation front, the region faces both external and internal challenges. Globally, the year-on-year decline in energy and agricultural commodity prices, including wheat, cocoa, and sugar, may help moderate inflation in the medium term. Domestically, however, pressure on wages without corresponding productivity gains continues to pose a structural risk. Wage increases not backed by productivity growth create inflationary momentum, forcing the private sector to keep pace with public sector wage policies, which further reinforces the cycle without lifting efficiency levels.
We expect gas prices in the European market to be in the range of 30 to 35 EUR/MWh in 2026, due to weakening demand as the transition to renewables continues, and global warming reduces the need for heating energy. Although economic momentum remains positive, there are no significant increases expected in industrial consumption. Risks will remain to come from geopolitical tensions that could disrupt supply routes and increase price volatility.
Regarding the oil price, we expect Brent oil to move in the range of 60 to 65 USD per barrel. The oil market is facing prospects of a growing surplus in global supply. As OPEC+ ceased production increase for the 1Q2026, we don’t see upside potential for oil, pointing out that the American administration as well is favouring a lower price at the gas stations. Absence of the strong economic growth from China doesn’t send additional positive signals for oil either, so, unless major geopolitical instability rattles the World, we don’t see significant risk for the upside.
Regarding interest rates, the European Central Bank (ECB) cut its key policy rate to approximately 2% by mid-2025, leading to a decline in the 3-month Euribor. We do not anticipate additional rate cuts before mid-2026. The eurozone economy remains on a broadly stable path, with inflation contained and resilience observed despite the imposition of new trade tariffs. Looking forward, ECB policy will likely focus more heavily on labour market dynamics and the condition of the industrial sector. In the Adria region, both the National Bank of Serbia (NBS) and the National Bank of North Macedonia (NBRNM) are expected to begin easing monetary policy in 2026, as inflation trends closer to target ranges. Lower interest rates should support corporate and consumer lending, injecting liquidity into the system and triggering new investment cycles across both economies.
Capital markets in 2025 have been both dynamic and volatile. The year began under pressure from newly introduced U.S. tariff policies under President Trump, but markets rebounded strongly, ending with solid gains. Market performance has once again been dominated by a concentrated group of mega-cap technology and AI-driven companies, leading to historically high levels of index concentration. The top 10 stocks now make up nearly 40% of the S&P 500, raising concerns around sustainability given the index’s elevated price-to-earnings ratio.
We expect the current momentum to carry into 2026, though caution is warranted. Risks remain high and include potential volatility in macroeconomic indicators such as inflation or labour market shifts. Of greater concern is the prospect of a capex slowdown or earnings downgrade among the leading tech and AI companies; any weakness in this narrow leadership could reverberate quickly across broader equity markets. In Europe, while valuations are generally lower and bubble risk less pronounced, changing trade policies threaten the competitiveness of European exporters in the U.S. Meanwhile, Chinese automakers are emerging as formidable challengers to the European auto sector, with the potential to erode market share for established domestic producers.
Within the Adria region, we expect continued equity market growth in Slovenia and Croatia, supported by lower market valuations and a comparatively lower risk profile. These markets present an attractive diversification opportunity away from highly priced global equities. In contrast, political risks remain elevated in Serbia, where ongoing uncertainty could weigh on investor sentiment. We maintain a neutral outlook on the Sarajevo and Banja Luka stock exchanges and note relatively elevated valuations in the Macedonian market.
On the fixed income front, U.S. Treasury yields are expected to continue trending downward, driven by the Federal Reserve’s ongoing rate-cutting cycle. A cooling labour market and contained inflation further support this trajectory, with another rate cut anticipated in early 2026. Limited new issuance, potential regulatory changes to the Supplementary Leverage Ratio (SLR), and lower policy rates should help keep yields from rising sharply.
In the Adria region, bond spreads are expected to tighten further as convergence with developed European markets continues. Serbia remains an outlier; political instability could temporarily widen spreads due to increased uncertainty. While our base case assumes political stabilization in Serbia through 2026, any escalation or abrupt change in government could dampen investor confidence in the short to medium term.
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