Serbia is classified as a lower middle-income country. Serbia has great potential for fast economic development, as the country is rich in natural and mineral resources and agricultural land is fertile and arable. Serbia is also well positioned for development as a transportation hub given its location at the crossroads of land and air routes linking Europe from north to south and west to east. In 2004, services accounted for about 57 percent of GDP, industry for 31 percent, and agriculture for 12 percent.

Since 2001, after a delayed transition, the country has progressed steadily towards a modern market economy. Progress with structural reforms has been impressive, despite the political turmoil of the past several years, which included the assassination of Prime Minister Zoran Djindjic and a new constitutional arrangement between the republics of Serbia and Montenegro.

Macroeconomic stability, achieved swiftly in 2001 and 2002, was broadly maintained, though the high current account deficit and persistent inflation remain a problem. During the first five years of transition the economy grew on average 5.5 percent per annum, peaking in 2004 with 9.3 percent GDP growth, one of the highest growth rates among transition economies. In 2005, growth remained strong at 6.3 percent. At the same time Serbia managed to significantly reduce indebtedness, thanks to favorable agreements with main creditors that resulted in debt write-offs and because of relatively small new borrowing.

Serbia was the last country in the region to initiate transition processes. During the last decade of the 20th century, Serbia was exposed to wars and economic sanctions. The political changes, which culminated in October 2000 with the fall of the Slobodan Milosevic regime, have laid the foundations for making a clean break with the past decade of economic decline. They have done so by creating the basis for economic and social reforms, as well as for enhanced donor support.

In spite of its new political leadership, Serbia continued to face a lot of challenges. Zoran Djindjic, the country's first democratic Prime Minister, was assassinated in 2003. Strained relations with Montenegro ended with the independence of the smaller of two partners in the loose union. Montenegro voted for independence on a referendum in May 2006.