Economic growth in the Western Balkans is expected to pick up in 2026 and show a stronger recovery in 2027, according to a new World Bank report. The region’s growth in 2025 slowed due to inflation affecting consumption and increased uncertainty that limited trade and investment, despite higher wages and credit expansion. Fiscal policy remained disciplined with deficits below 3% and public debt on a downward trend.
The World Bank’s Regular Economic Report projects that the combined economies of Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia will grow by 3.0% in 2025—slightly lower than previous forecasts. Growth is forecasted to rise to 3.1% in 2026 and reach 3.6% by 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,” said 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.”
The report highlights ongoing labor market challenges in the region. There are persistent shortages of workers in some sectors while unemployment rates remain high—above 10 percent—and labor force participation is low at under 55 percent, especially among women, youth, and older adults.
Demographic changes add further difficulty: the working-age population has already declined significantly and could shrink by nearly one-fifth by 2050 if current trends continue. This could lead to a shortage of more than 190,000 workers over the next five years.
To support future growth, the report suggests investing in education and health systems as well as increasing workforce participation among underrepresented groups such as women. Improvements in transport, environment, and energy infrastructure are also recommended to better connect firms and people.
The report also emphasizes strengthening governance through business-friendly policies and stable regulations to allow private sector expansion. Encouraging competition in sectors like energy and transport, reforming state-owned enterprises, simplifying regulations, and supporting innovative start-ups are seen as ways to improve service quality.
Finally, mobilizing private capital is viewed as important for providing businesses with financing options while promoting digitalization and environmentally sustainable practices.
For more information or access to previous editions of the Western Balkans Regular Economic Report visit the World Bank website.