Economic growth in the Western Balkans is expected to moderately accelerate in 2026 and recover more robustly in 2027, supported by stronger exports and investment as uncertainty in the global economy eases. To sustain progress toward convergence with the European Union, the region must focus on generating quality jobs, according to a new World Bank report released today.
In 2025, economic growth in the Western Balkans slowed as inflation dampened consumption and heightened uncertainty constrained trade and investment, despite robust wage and credit growth. Fiscal policy, while somewhat eased, remained disciplined, with the deficit being below 3% and public debt continuing a downward trajectory.
The Western Balkans Regular Economic Report forecasts that the combined economic growth of Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia will reach 3.0% in 2025, which is 0.2 percentage points belowprevious projections. Growth is anticipated to accelerate to 3.1%in 2026 and 3.6% in 2027.
“The Western Balkans are making progress in narrowing the development gap with more advanced European Union economies, but growth remains insufficient to meet people’s aspirations,” says Xiaoqing Yu, World Bank Division Director for the Western Balkans. “To help the region become a modern economy, it is important to rethink jobs strategies—such as encouraging greater labor market participation, improving skills of the population, and boosting firms through digital upgrades.”
According to the report, the Western Balkans face a labor market paradox: labor shortages persist in certain sectors alongside high unemployment rates—above 10 percent—and low labor force participation, which remains below 55 percent, particularly among women, youth, and older adults.
Demographic trends are compounding these challenges. The working-age population has already declined significantly and is projected to shrink by nearly 20 percent by 2050. If current population, growth, and labor market trends continue, the region could face a shortfall of more than 190,000 workers over the next five years.
To unlock growth, the Western Balkans must invest in the foundational infrastructure that is critical for job creation. That includes strengthening education and health systems andincreasing labor force participation—especially among women. Investing in transport, environment and energy infrastructure will help connect firms and people more quickly and efficiently,thereby improving productivity.
Secondly, strengthening governance and supporting business-enabling policies, along with a predictable regulatory environment, is necessary to allow the private sector to operate and grow. Fostering competition in key sectors such as energy and transport, reforming state-owned enterprises, streamlining regulations, and supporting innovative start-ups will enable businesses to expand and enhance service quality.
Finally, mobilizing private capital should support businesses with financing, investments, guarantees, and insurance, while also encouraging digital and green upgrades.
