The growth of the economies of Albania, Bosnia and Herzegovina (BiH), Montenegro, Kosovo, North Macedonia and Serbia exceeded the levels recorded before the outbreak of the pandemic despite the consequences of the Russian invasion of Ukraine, higher energy and food prices, unfavorable weather conditions, tightened financing conditions and significant uncertainty, it is stated in the latest Regular Economic Report for the Western Balkans published yesterday.
The outlook for the Western Balkans is still less favorable, and GDP growth is expected to slow to 2.6 percent in 2023, which will primarily be contributed by private consumption, exports and, in some countries, public investments, according to the report.
The region now faces the challenges of rebuilding buffers to prepare for future shocks, as well as implementing supply-side reforms to lay the foundations for more sustainable and greener growth, the report said.
“The Western Balkans have shown remarkable resilience despite significant economic turbulence,” said Xiaoqing Yu, World Bank Country Director for the Western Balkans.
“In order to continue to successfully weather the storm caused by multiple economic shocks, the countries of this region can achieve significant results by implementing reforms that increase productivity in the medium term, such as accelerating regional integration, improving market competition, attracting better quality investments and eliminating barriers that limit labor force participation, especially among women,” Yu added.
In BiH, real GDP growth is expected to slow down to 2.5 percent in 2023, as private consumption growth is halved due to a reduction in real disposable income and as the export deficit continues to increase due to low growth in the main export markets BiH in the European Union (EU). In the meantime, inflationary pressure began to ease at the end of 2022, and this trend is expected to continue in 2023. However, it is forecasted that inflation will remain at around 5 percent in 2023, which is well above pre-pandemic levels.
Inflation in the Western Balkans in 2022 recorded the highest level in the previous two decades, and price pressures remained elevated at the beginning of 2023, according to the report. In most countries of the Western Balkans, inflation measured by the consumer price index peaked at the end of 2022, under the influence of rising energy and food prices, and is now showing signs of calming down as external drivers become less pronounced due to the slowdown in global economic growth. And yet, inflationary pressures are still deeply rooted, which requires additional tightening of monetary policy.
Despite employment growth, the pace of job creation slowed in the second half of 2022 across the entire Western Balkans, the report said. Employment decreased the most in the agriculture and public administration sectors, but the slowdown was also recorded in industry and the service sector. The employment rate reached an all-time high of 47 percent in September 2022, after which it began to decline.
The medium-term outlook for the Western Balkans remains positive, although reforms are needed to accelerate the green transition and address key structural challenges.
