Economic Growth in South East Europe to be Sluggish in 2013


19 December 2012 – Prishtina, Kosovo – The World Bank has published a new report, that describes the difficult economic conditions in Southeastern Europe in both 2012 and 2013.  According to the report, the combined economies of the six South East European countries will shrink by 0.6 percent in 2012, and face formidable risks going into 2013 with expected growth of 1.6 percent.

The South East Europe Regular Economic Report (SEE RER) covers six countries (SEE6) – Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, and Serbia – and foresees that the road to sustained recovery will be arduous with sluggish growth in 2013 at best, and with significant risks. Among the clouds on the horizon for 2013 are the risks to recovery of the Eurozone and high commodity prices––risks to which all the SEE6 countries are highly vulnerable. The risk of a new food price shock could also exacerbate poverty and put pressure on the middle class.

see6In this uncertainty, Serbia, Albania, and Montenegro in particular will need to persevere in reducing fiscal deficits and bringing down public debt, even as they must continue to improve the investment climate and reform labor markets and the public sector. In all SEE6 countries, public sector arrears pose special challenges to fiscal management and the private sector, and there are unfinished, structural reforms agendas.

“In this fragile environment, Western Balkan governments need to pursue reforms that make a difference for long-term growth and jobs,” says Željko Bogetić, World Bank Lead Economist and Coordinator for Economic Policy for the Western Balkans and lead author of the SEE RER report, the third of a series of regular bi-annual reports.  “What is needed first and foremost is more intensive policy reform to reduce public debt and accelerate structural reforms, especially in public sector governance, the investment climate, and labor markets.”

In 2012, deteriorating external conditions, the impact of the severe winter on economic activity, and a continuing rise in unemployment took a toll on consumption, investments, and exports, explains the report.  It also notes that credit recovery and fiscal consolidation are under threat, while non-performing loans are again on the rise. As a result, both within and outside the region the environment has become much more difficult to navigate, and the policy trade-offs necessary to stabilize economies and reignite growth are tougher.

The report highlights that, pressured by the external environment, more competitive global economy, and inadequate revenues, SEE6 governments are seeking ways to improve efficiency, strengthen infrastructure, reform labor markets, attract foreign direct investment (FDI), rebuild their export base, and ensure financing. Several countries improved their investment climates and moved up on the global Doing Business ratings. But without further labor market reforms and significant infrastructure investments, especially in energy, it will be difficult to reduce unemployment, improve competitiveness, and achieve robust growth.

The report is divided in two parts. The first part, Recent Developments, Outlook and Policy Challenges, discusses a number of issues such as the external environment characterized by the Eurozone recession and new global risks, recent developments and policy issues in Western Balkan countries: labor markets, trade and external debt, fiscal policy, financial sector, business environment, privatizations, and energy infrastructure. The second part, Managing Vulnerability to Food Price Shocks in SEE6, discusses the impact on the region of possible increases in food prices. It also provides some specific recommendations for each country to better prepare for a possible new food price shock.

The Regular Economic Reports on South East Europe can be found at www.worldbank.org/eca/seerer.

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Source: The World Bank