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Western Balkan countries prove more resilient than expected




WESTERN BALKANS. The European Bank for Reconstruction and Development (EBRD) has raised its growth forecast for the Western Balkan countries to 6.4% in 2021, up from 5.1% in a previous estimate in June 2021

Released on Thursday 4 November 2021, the latest Regional Economic Outlook (REO) report explains this difference by a strong performance in the first half of the year with growth in exports and industrial production boosted by the recovery in the European Union. The good summer tourist season also paid off, particularly in the hotel sector for Albania, Kosovo and Montenegro. The expansion of household consumption, thanks to increased remittances, rising nominal wages and credit growth in most of the region's economies are also contributing to this better growth. "Fiscal policy has remained accommodative and monetary policy rates are at historically low levels to support the economy," the study says.

However, there are grains of sand that could undermine this positive momentum. In particular, the EBRD warns that "inflationary pressures (could) hamper the future recovery". As in most of the regions covered by the bank, consumer prices have been rising gradually since the beginning of 2021, due to rising food and energy prices. "While signs of economic recovery in the Western Balkans have been solid so far, significant uncertainties remain, especially those related to the future trajectory of the pandemic and the potential worsening of external conditions," comments Ana Krešić, EBRD regional economist for the Western Balkans.

Increase in foreign tourist visitors

The influx of foreign tourists has bolstered Montenegro's economy, which will achieve the strongest growth in the region in 2021 (photo: Montenegro Travel)
The influx of foreign tourists has bolstered Montenegro's economy, which will achieve the strongest growth in the region in 2021 (photo: Montenegro Travel)
Beata Javorcik calls it a "bittersweet recovery". According to the EBRD's chief economist, "the first half of 2021 was marked by a strong rebound. But we are now seeing more and more reasons for concern. While high commodity prices are benefiting exporters, they are weighing heavily on the trade balances of importers. Affordable energy supplies in the run-up to winter are becoming a serious concern, especially as governments have limited room for manoeuvre". Indeed, the report cites fiscal vulnerabilities for governments in the region after major plans were put in place to counter the effects of the Covid-19 health and economic crisis.

Montenegro could record the highest growth in the Western Balkans with an EBRD forecast of +12.3% in 2021 and +5.7% in 2022. These figures are mainly explained by the very strong contraction of its economy in 2020. The recovery of summer tourism - with the number of foreign visitors at 85% of the 2019 level - has also contributed.

Thanks to the rise in domestic and foreign demand, as well as the good results of foreign tourism (almost equivalent to the pre-pandemic figures for the June-August period), Albania is expected to grow by 8.0% in 2021 and by 3.7% in 2022. Another big rebound is in Kosovo. With services exports four times higher than before the pandemic and goods exports doubling in the first seven months compared to the same period in 2020, the country's GDP is expected to grow by 7.7% in 2021 and 4.5% in 2021.

The rebound of the euro zone favours the Balkan economies

Serbia has also done well. After a slight contraction in 2020, its economy is expected to grow by 6.5% in 2021 and 4.3% in 2022. The EBRD's forecasts are based on a strong expansion of exports and industry thanks to the rebound of the euro zone, its main trading partner. Foreign direct investment (FDI) has almost returned to its 2019 levels, suggesting further development of the Serbian economy. "Robust growth in household consumption followed a period of pent-up demand," the EBRD says. Monetary policy remains accommodative, especially as the central bank's main policy rate is at a historically low level of 1%.

In Bosnia-Herzegovina, the recovery of external markets (+50% for exports of goods and services), especially with the EU, its main client, and the strong growth of domestic private consumption should enable GDP to grow by 4.5% in 2021 and 3% in 2022.

In North Macedonia, household consumption is growing strongly, supported by rising wages, credit growth and remittances (although still at relatively low levels compared to other regional economies). Exports of goods have increased in value and volume, in line with imports, as a result of the recovery in the EU. Growth is expected to be 4.0% in both 2021 and 2022 in North Macedonia.

Read the full EBRD Regional Economic Outlook (REO) report (November 2021) 

Read also: Promises, but still no EU integration horizon for the Western Balkans 
EBRD and EGF to finance transition to circular economy in Turkey and Western Balkans 
Albania, North Macedonia and Serbia join forces in 'Open Balkans 

Eric Apim


Thursday, November 4th 2021



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