Western Balkans Sees Rising Risks to Growth Outlook Amid Slowing Job Creation


Economic growth in the Western Balkans accelerated from 2.6 percent in 2017 to 3.8 percent in 2018 and is projected to average 3.7 percent in 2019-20, according to the latest Western Balkans Regular Economic Report, Reform Momentum Needed. However, this outlook is vulnerable to growing external and domestic risks, including geopolitical and trade disputes and a slower-than-expected pace of structural reforms.

According to the report, countries in the region now have an opportunity to advance reforms to mitigate these risks amid growing public demand for greater economic opportunities.

Despite stronger growth in 2018, fewer new jobs were created in the region, reflecting limited dynamism in the private sector. Only 96,000 jobs were created in the Western Balkans in 2018, mostly in industry and services, compared to 171,200 jobs created in 2017. Unemployment fell in 2018 but remains high, particularly for women and the youth. In some countries, the fall in unemployment stemmed from increased labor inactivity and emigration rather than new jobs.

Real GDP Growth, 2017-2020                                    
     2017 2018e 2019f 2020f
Albania 3.8 4.2 3.8 3.6
Bosnia and Herzegovina 3.2 3.0 3.4 3.9
Kosovo 4.2 4.2 4.4 4.5
North Macedonia 0.2 2.7 2.9 3.2
Montenegro 4.7 4.4 2.9 2.4
Serbia 2.0 4.2 3.5 4.0
Western Balkans 2.6 3.8 3.5 3.8

Source: National data and World Bank estimates. Notes: e = estimate; f=forecast

“Policymakers in the region should look to implement reforms that can help generate a sustained growth momentum that spurs job creation,“ says Linda Van Gelder, World Bank Director for the Western Balkans.

“Fast-growth firms create most jobs in the Western Balkans, but there are few of these firms, especially when compared to other small transition economies in Europe. Removing barriers that make it difficult for new firms to compete and grow will create opportunities for people – encouraging entrepreneurship and innovation, boosting job growth and unlocking the human capital potential of this dynamic region.”

The report highlights that countries that have been committed to fiscal consolidation are seeing their public debt go down, and that it is critical to safeguard these gains. Public debt remains high in most countries, and public spending is dominated by large public wage bills and untargeted social programs. Thus, improving the efficiency and equity of public spending as well as strengthening revenue mobilization remains a priority for Western Balkan countries.

Against this backdrop, according to the report, it is vital for the Western Balkan countries to advance reforms to boost productivity, stimulate growth, and create jobs. The report discusses policy options in areas such as competition policy; taxation; financial sector diversification; and economic connectivity.

The report also looks at the human capital challenges in the region. If left unaddressed, these challenges will severely limit the prospects for growth and poverty reduction. For instance, investing in early childhood development would help improve performance in primary and secondary education, and empower students with the skills employers need. Better targeted social assistance programs would help protect poor and vulnerable households from shocks. And more efficient health systems would help address the rise of noncommunicable diseases and reduce out-of-pocket spending on health.


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