Economic growth in the Western Balkans is expected to remain subdued in 2026 and 2027, weighed down by the ripple effects of the conflict in the Middle East, persistent inflation, and heightened uncertainty. To sustain reform momentum in a region facing growing labor shortages, expanding workforce participation will be essential, according to a new World Bank Group report released today.
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 2.8% in 2026, which is 0.3 percentage points belowprevious projections. Growth is expected to pick up modestly to 3.2% in 2027.
“Global uncertainty and geopolitical tensions are holding back growth in the Western Balkans, and rising prices are hitting people’s wallets directly,” says Xiaoqing Yu, World Bank Division Director for the Western Balkans. “While policymakers are using short-term fiscal measures to cushion the impact of these pressures on households and firms, our report shows the key to long-term economic progress is jobs. The Western Balkans has a large pool of untapped talent — women, young people, and others who want to work but face real barriers. Bringing them into the workforce is one of the most effective steps the region can take to strengthen its economy.”
According to the report, Western Balkan populations are aging faster than almost anywhere else in Europe. Within the next decade, at least one in five people in the region will be over 65. Meanwhile, working-age people, including college graduates and manual workers, are looking for better pay and prospects abroad. The paradox is that labor shortages are binding in key sectors even as many people remain out of work or have simply given up looking.
The report points to an underutilized human capital: women, young people, and others who want to work but face barriers to enter the labor market. If labor force participation rates across the region matched those in comparable European Union countries, that would mean more than 2.8 million additional workersavailable to reduce labor shortages. Getting more women into jobs alone could add around 0.35 percentage points to annual growth.
The report calls for making work a more attractive option — starting with tax and benefit rules that, in many cases, still make staying home the financially safer choice. In most Western Balkan countries, for instance, reporting any labor income immediately disqualifies individuals from poverty-targeted benefits, making employment a financial risk rather than a reward. It also highlights the need for affordable childcare and eldercare, better job training, and workplaces that offer real flexibility and decent conditions, including for online platform workers.
