The World Bank published a report today (27 September) revealing that the economies of the six Western Balkans countries have performed rather well despite Brexit, the slow recovery in the EU and enlargement fatigue.
The World Bank Regular Economic Report (RER) covers economic developments, prospects, and economic policies in six South Eastern European countries, referred to as “SEE6”: Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia.
The EU usually calls those countries “the Western Balkans”. Of them, Serbia and Montenegro have already started accession negotiations while Albania has obtained EU candidate status in 2014. Bosnia and Herzegovina’s membership application was accepted by the EU only last week.
Macedonia is a special case – it has obtained candidate status since 2005, but has been unable to start accession negotiations because of its “name dispute” with Greece. The European Commission and other international institutions officially refer to Macedonia as “The former Yugoslav Republic of Macedonia”.
There remains only one Western Balkan country that has not submitted an EU membership application. But it would be certainly more difficult for Kosovo to move forward, as the former Serbian province that unilaterally declared independence in 2008 is not recognised by Spain, Slovakia, Greece, Romania and Cyprus.
The countries were deeply disappointed by Commission President Jean-Claude Juncker’s positioning that no new enlargement would take place during his term, which expires in 2019. However, the World Bank report stresses that “SEE6 countries continue to pursue firmly their aspirations for integration with the EU”.
The report describes as “complicated” the global environment in which the Western Balkans find themselves. The referendum decision in the United Kingdom to exit the EU, the ongoing crisis in Greece, pressures on Italian banks, political tensions in Turkey, and the continuing refugee crisis are all affecting the region, the report says.
“Political, institutional, and policy uncertainty in advanced economies, still low commodity prices, and exceptionally low interest rates dampen global growth expectations. Growth is slow everywhere”, the report notes, adding that in the EU, which is a major destination for SEE6 exports, growth is estimated this year at 1.9%, even less than last year’s 2%.
In comparison, the World Bank projects firm growth in SEE6 from 2.2% in 2015 to 2.7% in 2016. Investment continues to drive growth, especially in Albania, Montenegro, and Serbia. After several years of moderation, consumption also accelerated, mainly fueled by improvements in labour markets (Albania, Kosovo, and Serbia) and higher public wages and transfers (Macedonia and Montenegro).
Unemployment remains high in the region, averaging almost 25% in 2016 and ranging from 17% of the labour force in Albania to about 33% in Kosovo, and more than 66% of those unemployed have been jobless for prolonged periods, the report found. The youth unemployment rate is about double that of the working-age population, which has implications for future income generation.
Today, nearly 25% of youth in the six South East European countries (SEE6) is inactive, meaning neither in employment, education, or training. Stubbornly high youth unemployment ranges from 38.8% in Montenegro to 54.3% in Bosnia and Herzegovina.
In addition, election cycles, often accompanied by extra spending or lower revenue collections, tend to bring further uncertainty. However, this time, Albania, Bosnia and Herzegovina and Serbia seem to have broken that pattern, the report says.
The case of Macedonia is highlighted, where the effects of the prolonged political turmoil and the uncertainty around elections are starting to weaken the economy. The country’s political parties last month agreed to hold an early parliamentary election on 11 December in a step to resolve the 18-month-long crisis over a wiretapping scandal.
Across the SEE6 countries, though foreign direct investment has been somewhat resilient, domestic investment has plunged, the report says. On the fiscal side, wages, pensions, and transfers have gone up markedly this year in Macedonia and Montenegro, and in Albania poor planning and management of investments could lead to the accumulation of new arrears.
Finally, in Kosovo, prolonged political instability and lack of agreement on sensitive topics such as demarcation of the border with Montenegro have started to discourage foreign investors, the report says.
Kosovo’s government dropped plans for a parliamentary vote on a bitterly contested law on establishing its definitive border with Montenegro on 1 September) after coalition allies stayed away from the session.
The row has fueled months of violent clashes in the young country, including the firing of rocket-propelled grenades at parliament.
As new governments take office, positive momentum in structural reforms related to labor regulations, the business climate, efficiency of public investments and services, and economic integration could help speed up growth, the World Bank report says.