Western Balkans Economic Growth Slows

(Patria) - Economic growth in the Western Balkan countries will remain subdued during 2026 and 2027, influenced by the spillover effects of the conflict in the Middle East, persistent inflation, and deepening uncertainty. To maintain the momentum of reforms in the region's countries facing labor shortages, increasing labor force participation will be crucial, according to estimates in a report released today by the World Bank Group.

Forecasts from the Western Balkans Regular Economic Report show that the combined economic growth of Albania, Bosnia and Herzegovina, Montenegro, Kosovo, North Macedonia, and Serbia will reach 2.8% in 2026, which is 0.3 percentage points below previous projections. Modest growth acceleration to 3.2% is expected in 2027.

“Global uncertainty and geopolitical tensions are curbing growth in the Western Balkans, and rising prices are a direct hit to citizens' wallets,” said Xiaoqing Yu, World Bank Country Director for the Western Balkans. “And while policymakers are using short-term fiscal measures to mitigate the effects of these pressures on households and businesses, our report shows that jobs are key to long-term economic progress. The Western Balkans has a large source of untapped talent – women, youth, and others who want to work but face real barriers. Their inclusion in the labor force is one of the most effective steps the region can take to strengthen its economy.”

The population of the Western Balkans, according to this report, is aging faster than anywhere else in Europe. Over the next decade, at least one in five people in the region will be over 65 years old. Meanwhile, the working-age population, including university-educated individuals and manual laborers, is seeking better wages and prospects abroad.

The paradox is that labor shortages are felt in key sectors, even though many people are excluded from the labor force or have simply given up looking for work.

The report also points to underutilized capital: women, youth, and others who want to work but face barriers to entering the labor market. If the labor force participation rate were the same as in comparable European Union countries, it would mean an additional 2.8 million available working-age residents. Simply by including more women in the labor force, annual growth rates would increase by 0.35 percentage points.

Work, according to the report, should be made a more attractive choice – starting with tax and social benefit regulations, which in many cases make staying at home a financially safer option. In most Western Balkan countries, for example, reporting any work income simultaneously disqualifies individuals from poverty benefit programs, making employment a financial risk rather than a reward. The need for affordable childcare and eldercare, better job training, as well as jobs offering real flexibility and adequate working conditions, including for online workers, is also highlighted.