The countries of South East Europe – SEE6 (SEE6 are Albania, Bosnia and Herzegovina, Kosovo, Former Yugoslav Republic of Macedonia (FYR Macedonia), Montenegro, and Serbia), are projected to have grown at 2.1 percent on average in 2015.
This growth is significantly higher than the 0.3 percent growth in 2014, when the region was severely impacted by record-breaking floods. All six countries in the region are now projected to see real GDP growth, with Kosovo and the Former Yugoslav Republic of Macedonia projected to expand at 3.6 and 3.7 percent, respectively. Serbia, the country most impacted by the 2014 floods, is estimated to have grown by 0.8 percent, which is higher than initially predicted.
Higher growth in 2015 created new jobs in the private sector, which was a welcome development. New jobs and lower inflation increased household income and reduced poverty.
In Albania, FYR Macedonia, Montenegro, and Serbia, the average estimated poverty rate declined by 2 percent between 2013 and 2015, meaning that some 140,000 people in those four countries have escaped poverty.
Despite an expanding economy and employment that is finally responsive to economic growth, average unemployment in the region remains unacceptably high, averaging 21.5 percent.
A notable revival of investment underpinned economic growth, particularly private investment – both foreign and domestic. Exports are also helping to fuel this growth. Domestic consumption, while still an important economic driver in the region, has been overtaken by these two sources of growth in most countries.
This shift from consumption fueled by remittances toward private investment and exports shows early progress on a gradual but necessary rebalancing of the sources of growth.
“It is encouraging to see early signs of a shift toward investment and export-led growth in SEE6,” says Ellen Goldstein, World Bank regional director. “This rebalancing must be sustained in the long term by deepening economic reforms and reversing declining productivity since the global crisis.”
Improving productivity remains pivotal for boosting growth in the region. According to the report, sustainable growth can be achieved by focusing on a long-term reform agenda centered on five pillars.
Specifically, eliminating disincentives and barriers to formal employment, improving the business climate and governance, reducing the size of government while simultaneously improving the quality of service delivery for citizens, deepening trade and financial integration, and ensuring the sustainable use of natural resources.
Although signs of renewed investment and growth are favorable, considerable risks remain. Sluggish recovery in Europe and around the globe, higher external volatility in financial markets, and shifts in oil prices bring risks to the outlook in the region.
A large share of nonperforming loans may also depress future credit growth. Sustained implementation of economic reforms will help mitigate these risks posed to this recovery. /balkaneu.com/