The Western Balkans region is recovering from the 2020 recession induced by COVID-19, thanks to a faster-than-expected recovery in 2021, according to the latest edition of the Western Balkans Regular Economic Report, Greening the recovery.

The outlook for the region has improved considerably, with GDP growth now projected at 5.9% in 2021, after contracting 3.1% in 2020. Growth in the region is projected at 4.1% in 2022 and 3.8% in 2023.

Driven by a rapid recovery in tourism, Montenegro’s economy is expected to rebound strongly by around 10.8% in 2021, the highest rate among the six Western Balkan countries. The strong peak summer season has supported a rebound in tourism revenues, which are expected to reach nearly 75% of their 2019 levels, from 55% previously estimated.

The rebound in economic activity boosted government revenues, which, together with prudent fiscal management, reduced the budget deficit from 11% of GDP in 2020 to around 4% in 2021. Maintaining fiscal prudence in the medium term will be essential, as uncertainties loom.

“The economic crisis caused by the COVID-19 pandemic continues to be a source of uncertainty, but also offers Montenegro an opportunity to ensure a resilient, inclusive and green post-pandemic recovery,” said Christopher Sheldon, director World Bank countries. for Bosnia and Herzegovina and Montenegro. “The World Bank is committed to helping Montenegro implement reforms that can ensure macroeconomic stability, create economic opportunities and stimulate strong private sector-led growth.”

The report finds that unemployment in Montenegro remains high as the recovery has not yet ignited the labor market, which limits the pace of the resumption of poverty reduction. Poverty is expected to decline slowly in 2021, but remains above its 2019 level.

The region’s poverty rate is expected to resume its pre-pandemic downward trend and drop by around 1 percentage point to 20.3 percent, close to its 2019 level.

The region-wide recovery is driven by strong domestic and foreign demand. A sharp rebound in domestic consumption and travel across Europe helped boost remittances as well as tourism inflows during the peak summer season of 2021. A strong recovery in advanced economies also boosted demand for tourism. exports from the region.

However, the recovery remains fragile. Early warning signals from the labor market call for special political attention. Job losses due to the recession and its aftermath have disproportionately affected women and young people, potentially delaying efforts to raise the region’s still low labor market participation rates. Youth unemployment reached 37.7% in 2021, up 5.4 percentage points from June 2020, further worsening employment prospects for young people.

“As the countries of the Western Balkans envision a post-pandemic future, their policy approach will need to focus on the main obstacles to job creation and economic transformation, including the green transition,” said Linda Van Gelder, World Bank Country Director for the Western Balkans. . “The six countries would benefit from reforms in the business environment, governance and digitization, which would contribute to growth and close the gap with EU countries.”

The report also examines the macro-fiscal challenges and drivers of greening the region’s growth. The Western Balkans now finds itself at a key decision point regarding the impending green transition.

Global progress towards climate action is causing fundamental changes in society. Consumer and investor preferences are changing, green technologies and new business models are disrupting more markets, and green policies are reshaping economic landscapes. As such, the greening of a country’s economy becomes a decisive factor in international competitiveness and the ability to attract international finance and investment.

The Western Balkans are no exception. Still characterized by a development model oriented towards familiar brown industries, moving towards a green growth path is far from easy, especially in the short term. Yet the green transition offers significant opportunities for the Western Balkans, including closer integration into Eurocentric global value chains and access to significant EU resources to help finance a green transition.

The effective management of this green transition, including the many political compromises, will have to be at the heart of the political attention of the Western Balkans in the years to come.

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