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Economic growth in the Western Balkans is projected to slow to 3.2 percent in 2025 before recovering to 3.5 percent in 2026, amid heightened uncertainty.
However, economic uncertainty, especially regarding shifts in global trade policy has increased to levels that clouding prospects for investment and growth in the region. This uncertainty could affect business confidence and consumer sentiment.
The main impact is a potential slowdown in economic activity in the euro area, which in turn would affect trade in goods and services, investment and remittances.
The six Western Balkan economies have shown encouraging signs of economic resilience, with growth in 2024 supported by strong domestic demand and increased public investment.
These growth dynamics were reflected in labor markets. The region’s employment rate increased by about 1.1 percentage points, although the pace slowed during the course of 2024 across much of the region.
Poverty in the Western Balkan countries continued its downward trend, albeit at a slower pace than during the pre-pandemic period. Before 2019, the poverty rate decreased by almost 3 percentage points annually. In contrast, between 2022 and 2025, this rate has fallen by about 3 percentage points in total.
In line with global trends, inflation continued a downward trajectory in the region during 2024, although at varied pace across countries. The main drivers of inflation are now domestic factors, including rising wages and higher food prices.
Following three years of fiscal consolidation, several countries saw rising fiscal deficits in 2024, primarily due to higher government spending on wages and social benefits, alongside weaker revenue.
Risks—both domestic and external—are elevated.
In times of uncertainty, diversifying sources of growth and accelerating structural reforms could help sustain economic resilience. Key priorities include addressing labor force barriers—particularly for women, increasing regional economic integration, improving governance standards, and strengthening market competition to boost productivity and support growth.
Faster implementation of EU accession reforms—such as entry into the Single Euro Payments Area (SEPA) and the implementation of “green lanes” to facilitate cross-border trade—could improve business confidence, investment, and job creation in the region.
The spotlight in this edition of the Western Balkans Regular Economic Report focuses on green jobs and examines how extreme climate events are amplifying existing labor market vulnerabilities and creating new challenges for workers and employers.
Heat, drought, floods and other climate events—coupled with the global transition to a low-carbon economy—are reshaping employment patterns in the region, particularly in energy, agriculture, and tourism. Looking ahead, the impacts of a changing climate and the greening of the economy will require substantial workforce adaptation, including reforms to the social protection systems and employment services, to better protect people and enable labor market transitions.
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