The outlook for the Western Balkans is still less favorable, as GDP growth is expected to slow to 2.6 percent this year.
The World Bank estimates that GDP growth in Serbia will be 2.3 percent this year, three percent in 2024, and around 3.8 percent in 2025.
As World Bank representatives pointed out at today’s presentation of the “Regular Economic Report for the Western Balkans”, the region’s growth for this year will amount to 2.6 percent of GDP.
Director of the World Bank Office in Serbia, Nikola Pontara, emphasized that the biggest challenges for the entire region, in addition to geopolitical events, i.e. the conflict In Ukraine, are the high prices of energy and food, which have the greatest impact on inflation.
Inflation as a phenomenon is present throughout Europe, and especially here in the region. In most countries of the Western Balkans, it was in double digits in 2022, on average around 12 percent per year, which is a record in the last 15 years – said Pontara.
He also emphasized that Serbia was the leader in the employment rate, which reached 53.3 percent last year, which is a kind of record for our country.
As for the entire Western Balkans, according to the World Bank, it shows signs of resilience despite the slowdown in economic growth and the continuation of the upward trend in prices. The growth of the economies of Albania, Bosnia and Herzegovina, the so-called of Kosovo, North Macedonia, Serbia and Montenegro, as they say, exceeded the levels recorded before the outbreak of the pandemic despite the consequences of Russia’s attack on Ukraine, higher energy and food prices, unfavorable weather conditions, increasingly restrictive financing conditions and considerable uncertainty.
Private consumption key
The outlook for the Western Balkans is still less favorable, as GDP growth is expected to slow down
To 2.6 percent in 2023, which will primarily be contributed by private consumption, exports and, in some countries, public investments, it is announced in this report.
The Western Balkans have shown exceptional resilience despite significant economic turbulence. In order to continue successfully weathering the storm caused by multiple economic shocks, countries in the region can achieve significant results by implementing productivity-enhancing reforms in the medium term, such as accelerating regional integration, improving market competition, attracting higher-quality investments, and removing barriers. For the participation of citizens, and especially women, in the workforce – said Shaoqing Yu, Director of the World Bank for the Western Balkans.
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 reached its peak 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 remain deeply entrenched, requiring additional tightening of monetary policy.
Those higher prices especially had a serious impact on households with lower incomes, which, together with weaker economic growth, significantly slowed down the pace of poverty reduction, although certain positive effects of universal state support programs aimed at mitigating the consequences of the energy crisis are noticeable.
Positive prospects for the Western Balkans
According to the report, potential constraints going forward include lower external demand, which could negatively impact export earnings and limit remittances, and tighter fiscal space, which continues to constrain the support that can be provided to households.
The poorest households spend a much higher percentage of their income on energy and food, and these are the two items of the consumer basket whose prices have risen the most – said Sanja Madžarević-Šujster, senior economist of the World Bank and one of the main authors of the report.
In the medium term, the outlook for the Western Balkans remains positive, although reforms are needed to accelerate the green transition and address key structural challenges.
The current energy crisis has emphasized the need to accelerate the green transition throughout Europe, including in the Western Balkans. The key starting point is the acceleration of the transition to determining the prices of greenhouse gas emissions and increasing the scope of fiscal measures aimed at protecting the environment, which citizens and the economy encourage them to reduce their carbon intensity – said Richard Record, senior economist of the World Bank and one of the main authors of the report.
The only area where investments can achieve significant economic results in the Western Balkans is energy efficiency, it was added. Even a moderate increase in the energy efficiency of the economy would lead to large savings in greenhouse gas emissions from energy production, increase company profits, have significant positive effects on society and help protect consumers from future shocks that may be caused by rising electricity and gas prices.