In the context of weakening global demand, growth in the Western Balkans decelerated over the course of 2022 and into 2023. On the one hand, the slowdown in global demand for goods contributed to weaker-than-expected industrial production in the EU and in the Western Balkans, weighing on Bosnia and Herzegovina, North Macedonia, and Serbia. On the other hand, global demand for services has proved more resilient, in particular for travel, which has benefited Albania, Kosovo, and Montenegro.
The region’s labor market continued strengthening in 2023, against all odds. The average employment rate for the region reached a historical high of 47.8 percent in June 2023. This recovery in the labor market also benefited vulnerable groups—youth and women—with youth unemployment down to 22.7 percent in mid-2023, the lowest on record, but still higher than 14.3 percent in the EU27 in June 2023. In 2023, labor shortages continued to be among top concerns raised by businesses in the Western Balkans.
With inflation remaining at historical highs through 2023, poverty rates in the region are estimated to continue their downward trend, but at a slower pace. Despite recent momentum in the post-pandemic years, labor force participation rates in the Western Balkans continue to lag other countries with similar levels of economic development, and the gender disparities persist in all countries, despite a gradual increase in female labor force participation.
Despite persistent external volatility, all Western Balkan countries in 2023 are expected to continue running fiscal deficits below or close to their 2021 levels, while they maintain elevated social protection spending and continue spending more on public wages during 2023.
Inflation pressures in the Western Balkans are easing, although price pressures persist. The financial sector in the region has remained stable and resilient despite the increasing risks.
Growth is expected to decelerate across Western Balkans in 2023 and then to gradually recover over the medium term, but risks remain tilted to the downside. Growth rates in Europe are expected to be below the pre-pandemic five-year average, suggesting that the recovery is still weak.
Reforms are needed to consolidate the recovery toward sustainable growth, while negotiations with the EU hold the potential to bolster prospects in the Western Balkans. The spotlight on greening agriculture in the Western Balkans finds that, as the agriculture sector is undergoing a major structural transformation, efforts to green agriculture are important to ensure access to the EU market and for the competitiveness of agriculture, rural development, and food and nutrition security.