World Bank Report: Growth Recovery in Southeast Europe Supported by Investments

The World Bank has presented its latest economic report for the countries of Southeast Europe, stating that there was economic growth in 2015 compared to 2014 of 2.1%, reports the Bosnian news agency Patria.

Higher growth in 2015 led to the creation of new jobs in the private sector, which is certainly encouraging. New jobs and lower inflation increased household income and reduced poverty. In Albania, the former Yugoslav Republic of Macedonia, Montenegro and Serbia, the estimated average poverty rate fell by 2 percentage points between 2013 and 2015, meaning that around 140,000 people in these four countries escaped poverty. Despite economic growth and employment beginning to follow economic growth, the average unemployment rate in the region remains unacceptably high at 21.5 percent.

A notable influx of investments supported economic growth, particularly private investments – including both foreign and domestic. Exports also help stimulate growth. In most countries, exports and investments dominated over domestic consumption, although it is still a significant economic driver in the region. This shift from remittance-driven consumption towards private investments and exports shows early progress towards a gradual but necessary rebalancing of growth sources.

- It is encouraging to see in the countries of Southeast Europe these early signs of a shift towards investment and export-led growth - says Ellen Goldstein, Regional Director of the World Bank.

- This rebalancing must be sustained in the long term by deepening economic reforms and improving productivity, which slowed after the global economic crisis.

Improving productivity will strengthen growth in the region. As stated in the report, sustainable growth can be achieved by focusing on a long-term reform program aimed at five pillars. Specifically, removing disincentives and barriers to formal employment, improving the business climate, reducing the size of public administration while increasing the quality of services provided to citizens, deepening trade and financial integration, and ensuring sustainable use of natural resources.

Although increased investment provides favorable conditions for growth, there are also significant risks. The slow recovery in Europe and worldwide, greater external instability in financial markets, as well as changes in oil prices, create risks for the region. A large share of non-performing loans could reduce future credit growth. Consistent implementation of economic reforms will help mitigate existing risks to the recovery.

Albania, Bosnia and Herzegovina, Montenegro and Serbia continued to reduce their current account deficit-to-GDP ratios, while Kosovo and the former Yugoslav Republic of Macedonia increased theirs.

Net exports were the main driver of growth, and both consumption and investments supported growth in BiH.

The SEE6 countries include Albania, Bosnia and Herzegovina, Kosovo, the former Yugoslav Republic of Macedonia (FYR Macedonia), Montenegro and Serbia.