News & Analysis

Western Balkan growth accelerates, but more new jobs are needed

Economic growth in the Western Balkans accelerated from 2.6 per cent in 2017 to 3.8 per cent in 2018 and is projected to average 3.7 per cent in 2019-20, according to the World Bank’s latest Western Balkans Regular Economic Report, Reform Momentum Needed. However, this outlook is vulnerable to growing external and domestic risks, including geopolitical and trade disputes and a slower-than-expected pace of structural reforms.

According to the report, countries in the region now have an opportunity to advance reforms to mitigate these risks amid growing public demand for greater economic opportunities.

However, despite stronger growth in 2018, fewer new jobs were created in the region, reflecting limited dynamism in the private sector. Only 96,000 jobs were created in the Western Balkans in 2018, mostly in industry and services, compared to 171,200 jobs created in 2017. Unemployment fell in 2018 but remains high, particularly for women and young people. In some countries, the fall in unemployment stemmed from increased labour inactivity and emigration rather than new jobs.

“Policymakers in the region should look to implement reforms that can help generate a sustained growth momentum that spurs job creation,” said Linda Van Gelder, World Bank director for the Western Balkans.

“Fast-growth firms create most jobs in the Western Balkans, but there are few of these firms, especially when compared to other small transition economies in Europe. Removing barriers that make it difficult for new firms to compete and grow will create opportunities for people – encouraging entrepreneurship and innovation, boosting job growth and unlocking the human capital potential of this dynamic region.”

The report highlights that countries that have been committed to fiscal consolidation are seeing their public debt go down, and that it is critical to safeguard these gains. Public debt remains high in most countries, and public spending is dominated by large public wage bills and untargeted social programs. Thus, improving the efficiency and equity of public spending as well as strengthening revenue mobilisation remains a priority for Western Balkan countries.

Against this backdrop, according to the report, it is vital for the Western Balkan countries to advance reforms to boost productivity, stimulate growth, and create jobs. The report discusses policy options in areas such as competition policy; taxation; financial sector diversification; and economic connectivity.