Economic growth in the Western Balkans is forecasted to experience a slight deceleration in 2025, primarily due to lower external demand and uncertainty stemming from evolving global trade policies. The World Bank's Western Balkans Regular Economic Report, released today, indicates that these factors may influence business and consumer confidence in the region.
The report predicts a combined economic growth rate of 3.2% for Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia in 2025, falling short by 0.5 percentage points from earlier projections. However, growth is expected to rise to 3.5% in 2026.
Xiaoqing Yu, World Bank Division Director for the Western Balkans, expressed optimism about the region's economic trends, stating, "We are seeing some positive economic trends in the Western Balkans that underscore the region’s resilience and should underpin firm economic growth. Lower inflation and rising wages support consumption, public investments are beginning to pick up." However, Yu also cited concerns over increased domestic uncertainty and the impact of the EU's economic slowdown and global trade uncertainty on the region's growth outlook.
The slowdown in the euro zone's economic activity could potentially hinder trade, investments, and remittances in the Western Balkans. The report advocates for diversification of growth sources and the renewal of the structural reform agenda as strategies to maintain resilience. Recommended measures include removing labor market barriers, particularly for women, enhancing regional economic integration, improving governance, and boosting market competition to promote long-term growth.
Accelerating EU accession reforms, such as joining the Single Euro Payments Area and introducing "green lanes" to streamline cross-border trade, is seen as avenues to boost business confidence and drive investment and job creation.
The report also sheds light on the challenges posed by rising temperatures and extreme weather events, alongside the transition to a low-carbon economy. These factors are altering sectoral employment patterns, necessitating significant adaptations in the workforce. The six economies in the Western Balkans are urged to reform social protection systems and employment services to help labor forces adapt to climate-related challenges and to take advantage of new job opportunities from the green transition.
The report highlights the importance of strengthening labor income protection systems and enhancing the flexibility of social protection to avert poverty during employment shocks. Additionally, reskilling workers for green jobs is emphasized to meet the evolving demand for skills, thereby enhancing productivity and growth.
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