EBRD projects slowing down of growth in Western Balkans

The European Bank for Reconstruction and Development (EBRD) projects a slowing down of the economic growth in the Western Balkans, Serbia included, this and next year.

In its latest “Regional Economic Prospects in the EBRD Regions”, published this November on the bank's website, the EBRD estimates that Serbia's GDP will grow by 3.2% this year and 3.5% in 2020.

The previous report, published in May, projected 3.5% in 2019 and 3.8% in 2020.

Domestic demand, according to the EBRD, should remain the main growth driver, while net exports are most likely to continue their negative contribution.

– The economic slowdown of the main trading partner, the European Union, and the slow pace of reforms within the country might act as a drag on growth in the near term and make it more volatile – the EBRD estimates.

While Kosovo’s introduction of a 100% tariff on Serbian products may have a negative effect on exports of up to EUR 400 million a year, reliable assessments of this effect are not yet available.

The report also says that growth has subsided during 2019. Unfavorable trends in industrial production continued in the first half of 2019, with industrial output declining by 2% year on year on the back of falling production in mining and manufacturing, while utilities and agricultural output stagnated.

As a consequence, the overall GDP growth rate slowed to 2.8% year on year in the first half of 2019, from 4.4% in 2018.

The 2019 budget envisages a small deficit (0.5% of GDP), while public debt stood at 54% of GDP at the end of June 2019. Inflationary pressures have been low, also thanks to the strong exchange rate.

As for the entire Western Balkans, the EBRD projects a growth rate of 3.2% in 2019 and 3.4% in 2020. This is revised down by 0.2% compared to the May forecast, whereas the projection for 2020 has been revised up by 0.1% compared to May.

The report says that, despite the eurozone slowdown, FDI inflows to the region remain strong, with these economies benefiting from their favorable geographical location, skilled labor force and lower wage costs than those in central Europe.

When it comes to other economies of the Western Balkans, the forecast for Bosnia and Herzegovina is 3% for both 2019 and 2020, growth in Montenegro will be at 2.8% in 2019 and 2.6% in 2020, North Macedonia will see a growth of 3.2% in each year, whereas the growth rate in Albania will be 2.8% in 2019 and 3.5% in 2020.

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