Western Balkans Growth to Slow Modestly in 2025 Amid Global Trade Uncertainty: World Bank

Given the increasingly unpredictable global environment, the World Bank stresses the need for the region to diversify sources of growth and accelerate structural reforms to build greater economic resilience.

Economic growth in the Western Balkans is expected to experience a modest slowdown in 2025, according to the newly released Western Balkans Regular Economic Report (WBRER) by the World Bank. The six countries comprising the region—Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia—are projected to grow at 3.2% in 2025, a 0.5 percentage point downward revision compared to earlier forecasts. Growth is anticipated to recover slightly, reaching 3.5% in 2026.

The adjustment in projections reflects mounting external pressures and domestic uncertainties, particularly linked to evolving global trade policies and the slowing economic momentum in the eurozone, a key economic partner for the region.

Mixed Trends: Consumption Strengthens While External Challenges Persist

According to Xiaoqing Yu, World Bank Division Director for the Western Balkans, there are encouraging signals on the domestic front, including:

• Lower inflation rates, which are helping to stabilize consumer prices.

• Rising wages, boosting household consumption and supporting internal demand.

• Increased public investments, especially in infrastructure and modernization initiatives.

However, Yu also warned of significant downside risks, emphasizing, "We are witnessing increased domestic uncertainty in several economies of the Western Balkans. Slower economic activity in the European Union and heightened global trade uncertainty could negatively impact the growth outlook."

The European Union's sluggish economic performance is crucial because the EU is the largest trading partner for Western Balkan countries, providing vital channels for trade, investment, and remittance flows. A downturn in the EU typically translates into weaker demand for goods and services exported from the region.

Global Trade Uncertainty and Its Spillover Effects

The report highlights global trade uncertainty as a key external risk that could affect the Western Balkans primarily through:

• Reduced exports of goods and services to the EU.

• Declining foreign direct investment (FDI) flows.

• Lower remittances from citizens working abroad, a significant source of household income for many families.

Given the increasingly unpredictable global environment, the World Bank stresses the need for the region to diversify sources of growth and accelerate structural reforms to build greater economic resilience.

Strategic Reforms: Labor Market and EU Integration as Priorities

The World Bank report outlines several strategic priorities to sustain and strengthen growth:

• Labor Market Reforms: Removing barriers to labor market participation, especially for women, is vital. Increasing female employment would not only boost GDP but also promote more inclusive growth.

• Regional Economic Integration: Deepening intra-regional trade and investment links could provide alternative markets and strengthen collective bargaining power.

• Improved Governance and Competition: Higher governance standards and enhanced market competition are necessary to improve productivity, innovation, and long-term competitiveness.

The report also emphasizes that advancing EU accession reforms is critical. Accelerated steps such as:

• Joining the Single Euro Payments Area (SEPA) to facilitate cheaper, faster cross-border payments.

• Implementing “green lanes” at border crossings to streamline the movement of goods.

could significantly enhance business confidence, attract more foreign investments, and stimulate job creation across the Western Balkans.

Climate Change: An Emerging Economic Challenge

Beyond traditional economic risks, the report pays special attention to the growing impact of climate change on the region’s economic structure. The Western Balkans are increasingly vulnerable to:

• Rising temperatures.

• Extreme weather events like floods, droughts, and wildfires.

These environmental shifts are reshaping employment patterns across sectors such as agriculture, tourism, and energy, requiring a significant adaptation of the workforce.

To respond to these challenges, the World Bank recommends:

• Reforming social protection systems to cushion the impact of economic shocks caused by climate events.

• Enhancing labor income protection mechanisms to prevent people from falling into poverty.

• Investing in reskilling and upskilling programs tailored to the emerging green economy, including jobs in renewable energy, sustainable agriculture, and environmental services.

Such measures would help ensure that workers are better prepared for the future labor market, promoting higher productivity, economic security, and growth resilience.

Navigating an Uncertain Path Ahead

The Western Balkans' economic outlook for 2025 and beyond is a delicate balance of opportunity and risk. While internal resilience factors such as consumption strength and public investment provide a solid foundation, external pressures from global trade disruptions and climate change pose significant challenges.

Swift, coordinated action—especially in structural reforms, regional cooperation, and climate adaptation—will be essential for the six countries of the region to not only weather current uncertainties but also lay the groundwork for sustainable and inclusive growth over the coming decades.