Learn how the World Bank Group is helping countries with COVID-19 (coronavirus). Find Out

publication

Western Balkans Regular Economic Report: Spring 2020

Latest Issue: 
  • 17

Image
Artwork: You and Me, by Tatjana Burzanovic

A semi-annual report on recent economic developments and economic policies in the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia), this edition looks at the economic and social impact of COVID-19 on the Western Balkans region.

Image
The Economic and Social Impact of COVID-19:
Setting the Stage

English | Albanian | Bosnian | Macedonian | Serbian

Press Release (English) | BiH | Kosovo | Montenegro | North Macedonia | Serbia

 

 

The Regular Economic Report No. 17 is a collection of notes on the economic and social impact of COVID-19 on the Western Balkans region, published in three parts. The first part includes three Notes:

  1. Setting the Stage: Reviewing the state and vulnerabilities of the Western Balkan еconomies as they face COVID-19
  2. Outlook: Hard Times Require Good Economics
  3. Western Balkan Country Notes

The second part shows how the macroeconomic impact affects the people in the region. It discusses the social impact of COVID-19 on poverty and welfare, labor, health, education, air pollution, and social protection in the Western Balkans. The third part focuses on specific economic policy response areas —fiscal, external, and financial sector— and the crisis impact on the private sector as reported by firms.

The Western Balkans region is projected to enter a recession in 2020, whose magnitude depends on the duration of the COVID-19 outbreak in Europe

In the baseline scenario, the recession would be considerable, with growth in the region contracting by about 3 percent but with substantial differences by country based on economic structure and pre-crisis vulnerabilities. Assuming the COVID-19 outbreak is largely contained by mid-2020 - allowing economic activity to resume as measures to contain the virus are lifted and financial market and supply-chain disruptions ease - real GDP growth for the year would fall by 3.1 percent.

In the downside scenario, growth in the Western Balkans would fall by about 5.7 percent in 2020, causing a more severe recession than the global financial crisis. In the downside scenario, the outbreak lingers so that containment measures cannot be lifted until late in August, with economic activity beginning to recover only in the fourth quarter.



In all Western Balkan countries, the recession will be driven by a fall in both domestic and foreign demand during the COVID-19 crisis. 

Global and national virus containment measures, from social distancing to business shutdowns, generate supply-side disruptions and reduce household incomes and consumption—a twin demand-supply shock. Services may suffer a more protracted impact while travel restrictions and social distancing measures are in place, and they account for a particularly high share of total employment in the region - 75 percent in Montenegro and about 50 percent in the other countries. Household consumption will also be affected by lower remittances, which are projected to drop by 10 percentage point, year-on-year, in the region - with Serbia and Montenegro likely to experience declines of almost 20 percent.

The main risk for the Western Balkans is that a prolonged pandemic, as well as a deeper recession in the European Union, could make the unfolding economic crisis difficult to handle.

Quick, bold, and carefully designed mitigation measures can limit the social and economic impact of this crisis, but they need to account for country conditions and uncertainty about how long the crisis will last. Governments in all six countries have announced fiscal and social measures to support households and businesses during the emergency—ranging from 1 percent to 6.7 percent of GDP. Countries that entered the crisis with larger fiscal and external buffers have more space to finance larger support programs.

The announced short-term measures are necessary and aligned with the policy responses of EU countries.However, more people in the Western Balkans rely on self-employment, part-time work, and incomes from informal activities. These groups are vulnerable to the crisis but difficult to support through conventional measures. 


Image
The Economic and Social Impact of COVID-19: Western Balkans Outlook

English | Albanian | Bosnian | Macedonian | Serbian

Over the medium term, growth is expected to rebound strongly in all Western Balkan countries as life and economic activity gradually go back to normal, although the speed of the recovery depends on the duration and intensity of the pandemic.

In 2021, growth is expected to bounce back to pre-COVID-19 levels except in Albania, where it may spike to 8.8 percent, and Kosovo, rising to 5.2 percent. It is expected that both consumer and investor confidence will be restored and private consumption and investments will rise. The recovery in investment and activity in vital sectors like services, tourism, construction, and energy, will support job creation. 

Image
The Economic and Social Impact of COVID-19: Country Notes

Download All Country Notes 
Country-specific chapters: Albania | BiH | Kosovo | North Macedonian | Montenegro | Serbia


COVID-19’s Impacts in the Western Balkans

Poverty and Household Welfare COVID-19 and containment measures will halt poverty reduction and welfare improvements in the Western Balkans, with the crisis likely to affect household welfare, mainly through fewer jobs and loss of labor income in the most affected sectors, as well as lower international remittances. Many of those who could become impoverished because of the COVID-19 crisis will not receive social protection unless programs are expanded and informal workers without access to unemployment insurance and other support to the formal economy are particularly at risk. - English
- Albanian
- Bosnian
- Macedonian
- Serbian
Education The COVID-19 pandemic shocks to education systems in the Western Balkans will have negative short and long term impacts. Economic gains might falter, human capital growth will likely decline or come to a standstill, and current gaps in learning equity will widen. All countries in the region have responded to the disruption in education delivery by introducing various remote teaching modalities. Yet despite prompt action, learning loss will be unavoidable and considerable, disproportionately affecting the disadvantaged, with a larger share of students falling back into functional illiteracy and potentially dropping out of school altogether - English
- Albanian
- Bosnian
- Macedonian
- Serbian
Health Prior to the outbreak of COVID-19, health systems in the Western Balkans faced critical financing and service delivery challenges. Going forward, governments in the region will need to invest in critical pandemic preparedness gaps and identify opportunities to improve the quality of care and the efficiency and effectiveness of service delivery. - English
- Albanian
- Bosnian
- Macedonian
- Serbian
Labor Markets The total employment impact of the COVID-19 pandemic is expected to be unprecedented and broad-based in the Western Balkans, with 40 percent of the 2019 unemployment reduction gains lost by April 2020. All countries in the region have moved to support enterprises to retain jobs and protect unemployed and as the recovery phase starts, authorities there should not lose sight of addressing longer-term challenges. - English
- Albanian
- Bosnian
- Macedonian
- Serbian
Air Pollution Challenges Emerging evidence suggests that Ambient Air Pollution plays a role in the spread and impact of the COVID-19 pandemic and countries in the Western Balkan are particularly vulnerable - as many suffer from air pollution, especially during the winter months. Countries with high air pollution should enforce regulations and introduce measures to improve air quality, reducing the exposure of people in the upcoming winter. - English
- Albanian
- Bosnian
- Macedonian
- Serbian
Social Protection The COVID-19 pandemic is affecting labor markets and people’s employment opportunities across the Western Balkans and countries are stepping up their support to affected households. There are clear financing tradeoffs between programs and across time, and spending will need to be prioritized. It will be important to improve the targeting while guaranteeing the long-term funding of social protection, and limit the duration of wage subsidy programs - which are expensive. - English
- Albanian
- Bosnian
- Macedonian
- Serbian
Financial Sector The financial sector can help mitigate the impacts of COVID-19 on the real economy by providing bridge financing and loan restructuring for viable firms to help them alleviate the impacts of the crisis. Financial sector vulnerabilities have more impact on emerging markets like the Western Balkans - whose financial systems are less prepared to weather shocks. While national financial sectors in the region are generally stable, it is necessary to monitor credit and liquidity trends because COVID-19 poses the most serious threat since 2008. - English
- Albanian
- Bosnian
- Macedonian
- Serbian
Fiscal Policy After the immediate crisis containment period, fiscal policy needs to strike a balance between supporting economic recovery and ensuring fiscal sustainability. Some Western Balkan countries have improved their fiscal stance in recent years by creating fiscal buffers which allowed them to finance larger support programs. Still, all countries entered the COVID-19 crisis with more debt than before the 2009 global financial crisis and while all Western Balkan countries introduced measures to mitigate the immediate impact of the crisis, their effectiveness depends on how well they are adapted to the specific context in each country. - English
- Albanian
- Bosnian
- Macedonian
- Serbian
Trade Trade in the region will be affected by the combination of a supply side shock, largely through global value chains, and a demand side shock, due to recessions in major trading partners. Trade policies, such as tariff reductions and other measures to facilitate border crossings, will be key to alleviate the immediate disruptions caused by the pandemic, and to facilitate economic recovery. - English
- Albanian
- Bosnian
- Macedonian
- Serbian
Private Sector The economic impact reported by firms surveyed has been substantial. In each country, at least 50 percent of firms in the most affected sectors had been forced to close to some extent and those that remained open saw activity plunge. Surveys conducted at the onset of the crisis show that the total reported layoffs are concernedly large and access to raw materials and imports has been less of a constraint than liquidity, declining demand, and uncertainty. - English
- Albanian
- Bosnian
- Macedonian
- Serbian