BELGRADE, October 4, 2018 – Growth for the Western Balkan region is estimated to strengthen to 3.5 percent for 2018, according to the latest Western Balkans Regular Economic Report, Higher but Fragile Growth. Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, and Serbia are estimated to grow at rates between 2.5 percent and 4 percent.
In Kosovo, strong growth is expected to stabilize at 4.2 percent in 2018. Growth is projected to reach 4.5 percent in 2019-2020, but this outlook is vulnerable to external and domestic risks. Fiscal deficit is projected to increase, within the fiscal rule limits, due to higher public investment - mainly infrastructure and untargeted social protection spending.
“While growth maintains positive momentum and the fiscal policy remains in line with the fiscal rules, improving spending on investments in human and physical capital is essential for faster and sustainable growth,” said Marco Mantovanelli, the World Bank Country Manager for Kosovo. “Kosovo shows better absorption of investment financed by international financial institutions and better performance of exports, but the outlook could still suffer from political instability, further increases in untargeted benefits, and the global decline in trade and capital inflows,” he added.
While employment also rose in five of the six countries in the region, the 91,400 new jobs created between July 2017 and July 2018 were significantly fewer than the 214,000 added one year earlier. Most new jobs are appearing in the industry and services sectors.
“Across the region we are seeing growth supported by public investment and spending,” says Linda Van Gelder, World Bank Regional Director for the Western Balkans. “Countries that saw their private investment increase also saw faster growth. Although untargeted social spending and public wages have had a positive impact on growth in the short-term, they increase fiscal vulnerabilities. Increasing private investment and exports is a more sustainable way to grow.”
In most Western Balkan countries, high and rising public debt is coupled with fiscal and external imbalances, making the outlook vulnerable to an increase in financing costs should financial markets tighten. Sustaining long-term growth thus requires domestic reforms that unleash private investment and exports.
The report also calls for greater economic integration to promote higher, sustained growth and stimulate job creation. Increased integration between Western Balkan counties focusing on trade, investment, mobility, and digital integration is needed to accelerate growth, overcome small and fragmented national markets, and ensure long-term economic stability.