Tariffs in the Western Balkans are low; the cost of everything else that happens at the border is not.
When the World Bank published its spring Regular Economic Report on the Western Balkans in April, the mood was gloomy. The bank cut its 2026 growth forecast for the region’s six economies (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia) from 3.1 per cent to 2.8 per cent, citing the conflict in the Middle East, persistent inflation and a generally uncertain outlook. The autumn edition, released in Vienna this week, puts the forecast back where it started. Growth is now expected to reach 3.1 per cent this year, up from 2.6 per cent in 2025, before picking up to 3.4 per cent in 2027 and holding there in 2028. Household consumption and investment are doing most of the work.
Serbia, by far the largest economy of the six, explains much of the swing. Its economy grew by just 2 per cent last year, down from 3.9 per cent in 2024. The bank now expects 3.1 per cent in 2026 and 3.7 per cent in 2027, the latter 0.7 percentage points higher than its spring forecast. Kosovo and Albania have been the region’s most consistent performers, growing by at least 3.4 per cent in every year since 2023, and are forecast to keep doing so. Bosnia and Herzegovina remains at the back of the pack, with growth of 2.4 per cent pencilled in for this year. Montenegro and North Macedonia should both manage a little over 3 per cent.
Xiaoqing Yu, the World Bank’s division director for the Western Balkans, was careful not to oversell the upgrade. “At a time of heightened geopolitical uncertainty and weak growth among key trading partners, the Western Balkans have once again demonstrated economic resilience,” she said this week, adding, “but resilience alone is not sufficient to help the region converge toward average European Union incomes or create the quality jobs people need. Jobs come from dynamic private sectors, and the next phase of growth requires efficient, predictable regulation and the removal of trade barriers, not only at the border but also behind it.” She had struck a similar note in October 2025, when she said that growth in the region was still too slow to meet people’s aspirations.
On paper, the region is about as open as economies get. Successive rounds of tariff cuts pushed trade in goods and services to 107 per cent of regional GDP in 2025, well above the European Union average of 90 per cent. Services exports grew fourfold between 2010 and 2025, and in April the bank credited tourism and IT with much of their recent strength. Average tariffs on imported goods are now about six per cent.
The expense lies elsewhere. According to the report, non-tariff measures add the equivalent of another 10 per cent to the cost of imports, and more than 20 per cent in some agri-food sectors. Restrictions on services are pricier still: rules on commercial presence add an estimated 17 per cent, and those on cross-border services 29 per cent. The bank’s economists list the usual suspects, from licensing and authorisation requirements to repeated inspections, certification procedures and rules obliging foreign firms to set up locally. Their simulations suggest that removing half of the remaining barriers could raise GDP by up to 12.5 per cent over the medium term.
Higher import costs also make it harder for firms to start exporting and, more to the point, to keep at it. Only about a third of new export ventures launched by firms in the region survive their first year, and just 1 to 4 per cent are still going in their fifth. That matters for jobs. Trading firms employ the vast majority of the region’s manufacturing workers, and they tend to be larger and to pay better than comparable firms that sell only at home.
Better-paid jobs are something the region badly needs. The spring report warned that the Western Balkans have some of the fastest-ageing populations in Europe, with at least one in five people set to be over 65 within a decade, and that working-age people (graduates and manual workers alike) continue to leave for better pay abroad. If labour-force participation matched that of comparable EU countries, the bank reckoned, the region would have more than 2.8 million extra workers.
Reform, in the bank’s view, should mean smarter regulation rather than simply less of it. It recommends streamlining and digitising procedures, moving to risk-based inspections, recognising standards and qualifications that are already aligned, and keeping safeguards that serve legitimate public objectives. Alongside the regional report, the bank published two country studies, a trade competitiveness diagnostic for Serbia and another for Albania.
Photo: Dreamstime.