Western Balkans Regular Economic Report: Spring 2020

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

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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. 

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

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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. 

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

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