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Western Balkans GDP growth to pick up to 3.2% in 2018, 3.5% in 2019 – World Bank

Western Balkans GDP growth to pick up to 3.2% in 2018, 3.5% in 2019 – World Bank Source:

TIRANA (Albania), April 11 (SeeNews) – The gross domestic product (GDP) growth in the Western Balkans is expected to accelerate to 3.2% in 2018 and 3.5% in 2019, from 2.4% in 2017, the World Bank said on Wednesday.

In the medium term, real GDP growth in the Western Balkans is projected to recover by faster growth in many countries in the region, the World Bank said in its Regular Economic Report Spring 2018.

"The growth outlook assumes favorable external conditions: an investment-supported economic recovery in the EU, higher growth in global trade flows, and favorable financing conditions with relatively low interest rates, even if there is further normalization of monetary policy in advanced economies," the report reads.  

According to the World Bank, the expected recovery in EU growth is a major impetus for growth in the Western Balkans region, which comprises Albania, Bosnia, Kosovo, Macedonia, Montenegro and Serbia. 

However, both weather-related shocks and country-specific vulnerabilities such as low potential growth could disrupt regional growth forecasts.

The World Bank urged countries to combat the effects of these vulnerabilities by introducing reforms promoting private sector development and reducing barriers to workforce participation.

“Policies that increase both physical and human capital, boost employment, and improve market institutions can simultaneously elevate the growth potential of the countries in the region and reduce inequality.”

The bank also urged the Western Balkan countries to redirect spending to investment in physical and human capital. Diversification of funding sources is vital to providing term financing to foster investments, and ultimately economic growth, it said.

Financial sectors in the Western Balkans are bank-centric; there is very little capital market activity, negligible penetration of insurance products, and generally insignificant non-bank financial institutions. Identifying alternative sources of funding could be an important driver of innovation and long-term growth for the region.

The report called for bold structural reforms in order to bolster job creation and spur sustainable growth over the medium term.

"Domestically, political uncertainty may cloud the growth outlook if upcoming elections in several countries lead to a slower pace of structural reforms," the World Bank said. 

Growth in the region slowed down last year from 3.1% in 2016, despite the creation of 190,000 new jobs in the first nine months of 2017, the World Bank said. 

The slowdown was mainly due to weaker growth in Serbia, 1.9% in 2017 compared with 2.8% in the previous year, and Macedonia, where GDP stalled due to political crisis in 2017, it added.

“The dynamism of the smaller economies of Albania, Kosovo, and Montenegro drove regional growth in 2017, with support from higher growth in trading partners, a pickup in commodity prices, and the execution of large investment projects.”

Labor force participation increased in most countries in 2017, the report said, adding that over 80% of new jobs were in services, mostly retail and wholesale trade, supported by growth in consumption.

“Although unemployment fell in most countries, it still ranges from 13.5% in Serbia to 30.4% in Kosovo. Poverty continued to fall despite rising food and energy prices,” the World Bank said.

The report also noted that although the external environment remained favourable in 2017, net exports contributed less to growth, overwhelmed by higher imports for energy projects, consumption, and investment.

Real GPD growth in the Western Balkans (percentage) follow:

  2016 2017 2018f 2019f
Albania 3.4 3.8 3.6 3.5
Bosnia and Herzegovina 3.1  3.0 3.2 3.4
Kosovo 4.1  4.4 4.8 4.8
Macedonia 2.9 0.0 2.3 2.7 
Montenegro 2.9 4.3 2.8 2.5
Serbia 2.8 1.9 3.0 3.5
Western Balkans 3.1  2.4 3.2 3.5

Source: Central banks and national statistics offices; World Bank estimates and projections