世界发展银行-Western-Balkans-Regional-Economic-Report,-No.-20,-Fall-2021---Greening-the-Recovery_116页_7mb

Western Balkans Regular Economic Report No.20 - Fall 2021: Greening the Recovery

Core Content Overview

The Western Balkans Regular Economic Report No.20 provides a comprehensive analysis of the region's economic recovery post-COVID-19, highlighting the challenges and opportunities for sustainable and green growth. The report outlines the region's economic performance in 2021, labor market dynamics, fiscal and monetary policies, inflationary pressures, and the broader implications of the green transition.

Main Economic Trends and Recovery

1. Strong Economic Recovery in 2021

• The Western Balkans experienced a strong rebound from the 2020 recession, with GDP growth projected at 5.9% in 2021, a 1.5 percentage point increase from earlier forecasts.
• The recovery was faster than expected, driven by:
  • Domestic reopening and rebound in consumption and tourism.
  • Favorable external demand, especially from the European Union.
  • Rapid vaccination in advanced economies and fiscal stimulus boosting regional exports.
• Output is expected to return to pre-crisis levels by the end of 2021, except for Montenegro, which is projected to recover by mid-2022.

2. Inflationary Pressures

• Inflation rose to 2.3% in 2021, up from 0.9% in 2020.
• The increase is driven by food and energy prices, as well as rising domestic costs during the summer tourism season.
• Minimum wages increased in most countries, further contributing to inflation.

Labor Market and Poverty

3. Labor Market Struggles Despite Growth

• The employment rate is decreasing, even as the economy recovers.
• Unemployment rates increased in most countries, with the exception of Kosovo and North Macedonia.
• Inactivity remains a challenge, particularly among youth and women.
• Job losses were uneven, with women and youth disproportionately affected.
• Employment expectations reached a record low in late 2020, but 75% of firms expect to maintain or increase employment in 2021.

4. Slow Poverty Reduction

• The poverty rate is expected to decline to around 20.3% in 2021, close to 2019 levels.
• However, the recovery is uneven, with poverty reduction resuming slowly due to weak labor market performance.
• Food price inflation significantly affects poor households, reducing their purchasing power.

Fiscal and Monetary Policies

5. Fiscal Policy and Debt Management

• Fiscal deficits narrowed in most Western Balkan countries in 2021, with the average deficit reduced by 2.7% of GDP.
• Public revenues increased, particularly from value-added taxes, due to stronger domestic consumption.
• Public expenditures leveled off after the 2020 surge, but remain above pre-pandemic levels.
• Public and publicly guaranteed debt (PPG) is elevated, with external debt rising.
• EU Macro-Financial Assistance and IMF SDR allocations provided critical support to the region.

6. Financial Stability

• Non-performing loan (NPL) ratios increased slightly in Q1 2021 and are expected to rise further as borrower relief measures expire.
• Credit growth remained positive, but slowed in H1 2021.
• Lending to households surged, indicating improved access to credit.
• Banks maintained capital buffers, but the health of the financial system will be tested during the recovery.

External Sector and Global Integration

7. External Sector Adjustments

• Current account deficits are expected to narrow or remain stable across the region.
• Net FDI inflows remain resilient, with a smaller decline compared to the EU and other regions.
• FDI is concentrated in manufacturing, financial services, transportation, and construction.
• Kosovo and Montenegro saw underperformance in capital expenditure.
• External debt and foreign exchange reserves rose sharply, and net international investment positions worsened.

Green Transition and Structural Reforms

8. The Path to a Green Recovery

• The Western Balkans are at a key decision point regarding the green transition.
• The region's carbon intensity of GDP is higher than the EU, and reliance on fossil fuels is significant.
• Structural reforms are needed to address weak productivity, lack of market competition, limited regional integration, and weak institutions.
• The top structural reforms required to close the gap with Germany include:
  • Regulations
  • Governance
  • Financial development
  • Digitalization

9. Green Opportunities and Challenges

• The green transition presents opportunities for the region, including:
  • Integration into Euro-centric global value chains.
  • Access to EU resources for green investment.
• However, the development model remains brown, with sticky brown skills and jobs.
• Green Complexity Index highlights potential strengths and opportunities in the region.
• Direct subsidies to coal and lignite electricity producers are still significant.

Key Risks and Uncertainties

• The recovery remains fragile due to:
  • Low vaccination rates (below 40% in most countries).
  • Uncertainty about new pandemic variants and mobility restrictions.
  • Depleted fiscal space and high debt levels.
• Political uncertainty could delay investment recovery.
• Vaccine hesitancy is higher in the Western Balkans than in the EU, posing a risk to achieving herd immunity.

Conclusion

The Western Balkans is experiencing a strong economic recovery in 2021, with GDP growth rebounding sharply. However, the labor market remains weak, and poverty reduction is uneven. Fiscal and monetary policies are playing a crucial role in stabilizing the economy, but debt levels remain high. Inflationary pressures are rising due to domestic and global demand, and financial stability is a key concern. As the region moves forward, green transition and structural reforms will be critical for long-term growth and EU integration. The success of the recovery will depend on policy coherence, investment competitiveness, and addressing structural and environmental challenges.