Economic growth in the Western Balkans to accelerate in 2024, albeit slowly and unevenly

(Patria) - After a slowdown in 2023, a moderate acceleration of economic growth in the Western Balkans to 3 percent is expected in 2024, amid further recovery in the European Union, the main trading partner of this region, while lower inflation should contribute to the growth of disposable income and support consumption, according to the new Regular Economic Report of the World Bank, published today.

The pace of growth the region will achieve in 2024 will be faster than this year, but the growth rate could be 0.1 percent lower than the one the World Bank forecast in the previous, April edition of this report. The growth projection for 2025 remained unchanged at 3.5 percent.

However, there are differences between countries in the speed of recovery and return to pre-pandemic levels. Growth in Montenegro and Albania in 2023 was stronger than expected, partly due to a successful tourist season, and may partially slow down in 2024. According to projections, growth will accelerate in 2024 in Serbia, North Macedonia, Bosnia and Herzegovina, and Kosovo, driven by increased consumption and investments.

"Despite multiple shocks, the Western Balkan countries have managed to achieve growth, create new jobs, and reduce poverty, which points to the strong underlying economic fundamentals of this region," said Xiaoqing Yu, World Bank Director for the Western Balkans.

"It is encouraging that the Western Balkans continues to make progress in catching up with the more developed economies of Western Europe. However, convergence is occurring at an uneven pace, which requires targeted reforms to consolidate the recovery and turn it into sustainable growth," she concluded.

Despite expectations, the labor market in the Western Balkans continued to strengthen in 2023. The average employment rate in this region reached a new historical high of nearly 48 percent, and 103,000 new jobs were created from mid-2022 to mid-2023. Progress was strongest in Albania, Bosnia and Herzegovina, and Montenegro. At the same time, labor shortages remain among the most significant problems cited by businesses in the Western Balkans. Despite recent progress recorded in the post-pandemic years, labor force participation is still low, which, along with a deep gender gap, hinders further poverty reduction.

This region must not only remove barriers to greater labor force participation but also accelerate economic convergence with the more advanced economies of Europe, the report states. In addition to these efforts, a faster green transition and greater investment in increasing resilience to natural disasters are needed, including in agriculture.

"Agriculture is one of the sectors most significantly affected by droughts, shortening seasons, and unpredictability of weather patterns. If they protect agriculture from natural risks and make it more resilient, the Western Balkan economies could continue to increase agricultural productivity despite the adverse impact of climate change and be able to sustainably produce more quality food for domestic needs, but also for export, including to the EU," said Natasha Rovo, Senior Economist at the World Bank and one of the authors of the report.

"This requires improved public policies and investments to encourage the widest possible adoption of climate-smart technologies and practices among farmers, supported by stronger public institutions that are crucial for sustainable agricultural growth," Rovo added.

Although the agricultural sector in the region is shrinking, it remains highly relevant: for example, in these six countries, between seven and 35 percent of the population is employed in agriculture. Greening agriculture therefore offers an opportunity to boost the productivity, competitiveness, and resilience of this sector, through more purposeful use of available public funds, knowledge, and innovation, the report states.