Western Balkans show resilience despite slowing growth and continued rise in prices
VIENNA, April 25, 2023— The economies of Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia have exceeded their pre-pandemic levels despite the fallout from Ukraine’s invasion of Ukraine. Russia, rising energy and food prices, adverse weather conditions, tightening financial conditions and significant uncertainty. , according to the latest regular economic report on the Western Balkans published today.
The outlook for the Western Balkans remains gloomy, with GDP growth expected to moderate to 2.6% in 2023, mainly driven by private consumption, exports and, for some countries, public investment, the report says .
The region now faces the challenge of rebuilding its reserves to prepare for future shocks and undertaking supply-side reforms to lay the foundations for more sustainable and greener growth, the report said.
“The Western Balkans have demonstrated remarkable resilience despite significant economic difficulties,” said Xiaoqing Yu, World Bank Country Director for the Western Balkans. “To continue weathering the storm caused by multiple economic shocks, countries can achieve high returns by pursuing reforms that boost productivity in the medium term, such as accelerating regional integration, increasing levels of competition in the market, attracting better quality investments and removing obstacles that limit work. force participation, especially among women.”
Inflation reached a two-decade high in 2022 in the Western Balkans, and price pressures remain high in early 2023, the report said. In most Western Balkan countries, consumer price inflation peaked in late 2022, driven by rising energy and food prices, and is now showing signs of slowing, factors external factors are now dissipating due to the slowdown in global growth. However, inflationary pressures remain well anchored, requiring further tightening of monetary policy.
These higher prices have hit low-income households particularly hard, which, combined with lower economic growth, has resulted in a much slower pace of poverty reduction, despite the benefit of universal government support programs to alleviate the energy crisis. Potential constraints going forward include weaker external demand, which could negatively affect export revenues and limit remittances, and tighter fiscal space, which continues to limit the support that can be provided to households, according to the report.
“The poorest households spend a much higher share of their income on energy and food, the two elements of the consumption basket whose prices have increased the most.said** Sanja Madzarevic-Sujster, senior economist at the World Bank and lead author of the report**. “This means that the increase in the real cost of living faced by the poor in the Western Balkans is much higher than official consumer price inflation figures suggest. To design effective policies to protect the less well-off and promote economic growth, it is important to take into account the variability of inflation rates across different types of households..”
Despite employment growth, the rate of job creation lost strength in all Western Balkan countries during the second half of 2022, the report said. Employment contracted the most in agriculture and public administration, while industry and services also observed a slowdown. The employment rate reached an all-time high of 47% in September 2022, after which it began to decline.
In the medium term, the outlook for the Western Balkans remains positive, although reforms are needed to accelerate the green transition and address key structural challenges.
**”**The current energy crisis has highlighted the need to accelerate the green transition across Europe, including the Western Balkans.,” said Richard Record, senior economist at the World Bank and lead author of the report. “A key starting point is to accelerate the move towards carbon pricing and increase the use of environmental tax measures that incentivize households and businesses to adopt lower carbon intensity..”
Energy efficiency is an area of investment that can generate significant economic benefits for the Western Balkans, the report adds. Even moderate improvements in business energy efficiency would deliver substantial savings in energy-related greenhouse gas emissions, improve business profits, and generate significant social benefits. and to help protect against future shocks to electricity and gas prices.
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