Coronavirus pandemic the most serious threat to BiH economy after global financial crisis

SARAJevo, (Patria) - The Western Balkans region is expected to enter a recession in 2020, with all six countries projected to experience negative growth, still facing the consequences of the COVID-19 (coronavirus) pandemic.

In its latest Regular Economic Report (RER) - which uses a baseline and downside scenario in light of the great uncertainties caused by the pandemic - the World Bank forecasts that Western Balkan regional growth will be between -3 and -5.6 percent. The baseline scenario assumes that the epidemic in Europe will soon begin to slow down, so that containment measures can be lifted by the end of June and that recovery can gradually begin in the second half of 2020. The downside scenario assumes a prolonged epidemic and the lifting of containment measures only at the end of August, with economic activity recovery starting only in the last quarter of 2020.

"The severity of the recession depends on the duration of the pandemic in Europe. Although it is difficult to predict the economic impact of the current pandemic in the region, there is no doubt that it is disrupting life throughout the region - straining the health system, paralyzing economic activity, and endangering people's well-being," says Linda Van Gelder, World Bank Director for the Western Balkans.

"Growth in the region is expected to rebound significantly in the medium term as the economy gradually returns to normal, but this also depends on the length and intensity of the current crisis, as well as on what policymakers do to overcome this epidemic," she added.

The coronavirus pandemic represents the most serious threat to the economy of Bosnia and Herzegovina (BiH) after the global financial crisis.

The outlook for BiH's economy depends on numerous uncertain factors, and the country faces a possible deep recession with an estimated GDP decline of 3.2 percent. The effects will be felt in almost every sector of the economy, especially in tourism, real estate, transport, wholesale, and retail; while disruptions in supply chains and lower demand from the EU will lead to a decline in both industrial production and exports of goods and services.

The announced government response through the establishment of an economic stabilization fund and a guarantee fund can help mitigate the economic and social consequences of this unprecedented crisis in the short term. As additional crisis response measures are developed, especially those related to the establishment of new funds, it will be important to ensure that support is allocated transparently, carefully targeted, fiscally sustainable, and easily phased out when no longer needed.

After this emergency response phase, an economic recovery phase will follow, and institutions should be prepared to help individuals find jobs, facilitate access to credit, and provide support to companies to resume their operations. It will be crucial to use public spending to boost overall demand while maintaining overall fiscal stability. In addition to the current crisis, it is important for BiH to remain focused on addressing its long-standing structural and institutional weaknesses.

The latest RER states that rapid, decisive, and carefully designed policy measures are important, taking into account the country's situation and the uncertainty of the crisis's duration.

The report focuses on the macroeconomic impacts of COVID-19 in the Western Balkan countries, laying the groundwork for further analysis. During the upcoming e-presentation of the report in May, a series of Regular Economic Report briefs will be released, examining the impact on specific economic areas, the social sector, and poverty and income distribution in the region.