The COVID-19 pandemic has plunged the Western Balkan economies into a deep recession, like in the rest of the world. In 2020, economic activity contracted by an estimated 3.4 percent—the worst downturn on record. The primary causes were the drop in domestic and foreign demand and disruptions in supply chains, especially early in the year. The region’s economy began to reactivate in Q3 2020, supported by partial easing of stringent lockdowns and the revival of global demand. But with renewed restrictions in late 2020 in response to a resurgence of infections, the recovery has been subdued.
The crisis has led to significant job losses but the labor market is rebounding. The pandemic halted a decade of the region’s progress in boosting incomes and reducing poverty. Job support schemes and other government measures helped prevent steeper spikes in poverty. By end-2020, the labor market had recovered half of its pandemic losses, still leaving large numbers of people unemployed. Workers with less education, women, youth, and those informally employed have suffered disproportionately.
The recovery is expected to strengthen in the second half of the year as vaccinations continue and confidence, consumption, and trade gradually improve. The economy is projected to expand by 4.4 percent in 2021. In 2022 and 2023, growth will likely moderate to 3.7 percent, weighed down by lingering damage from COVID-19.
A number of risks could derail the economy. Economic recovery hinges on the vaccine rollout and the durable containment of the pandemic. Even if the pandemic is brought under control, damage to the economy could persist for longer than expected. The uncertain near-term outlook underscores the importance of the right policy choices.