Western Balkans to grow 4 times higher than EU average for 2012

Western Balkans to grow 4 times higher than EU average for 2012

Reported in SETimes.com, The Western Balkan economies are expected to grow at a slower pace next year, the World Bank (WB) said in a report this month, covering Albania, Bosnia and Herzegovina (BiH), Kosovo, Macedonia, Montenegro and Serbia. Given their vulnerability to the effects of the eurozone crisis, the six countries, dubbed SEE6 in the paper published on November 15th, should adopt policies to foster stability and long term growth. 

The Bank's projections are that the region will grow by an average of 2.5% this year, and then slow to 2.1% in 2012, well below the 5.9% rate registered in 2008, but four times higher than the 0.5% growth the EU is expected to post next year. "However, even these modest growth projections assume that the eurozone crisis is solved in an orderly manner," cautioned Ron Hood, lead economist in the Bank's Europe and Central Asia region and lead author of the report.

SEE6 GDP Real Growth Rates (%)

Trade is one of the main areas that will hit SEE6 economies in the event of deeper economic and financial stress in the eurozone, according to the Bank. The financial crisis that started spreading across the globe in late 2008 resulted in a 14.7% drop in the region's exports to the 27-nation bloc the following year. Increased demand and higher commodity prices, especially for metals, led to strong growth in the flow of goods from the SEE6 countries to the EU and a return to pre-crisis levels by the third quarter of 2010. Last year, 58.2% of the region's total exports were to members of the Union, with the lion's share going to Italy and Germany, the Bank said. The global downturn led to an even sharper fall in imports for the SEE6 nations in 2009. This, however, led to a roughly 10% of GDP improvement in both their trade balance and current account deficit in 2010, as compared to 2008. Kosovo and Montenegro had the largest current account deficits, at over 20% of GDP last year, according to the report. A further deepening of the eurozone crisis could also lead to a decline in foreign direct investment (FDI) to the six Western Balkan countries. The EU is the largest aggregate FDI provider to the region, with net FDI inflows worth over 2% of the region's GDP, the Bank said. Although SEE6 workers' remittances have not been seriously affected by the last crisis, their level could decline, particularly in countries like Albania, whose diaspora is concentrated in Greece and Italy. Foreign-owned banks, particularly Greek and Italian, whose share in the total assets of the region's banking system stands at about 89%, represent another channel of potential negative impact from the turmoil in the euro area on the Western Balkan countries, noted the Bank. "Whereas overall banking systems in SEE6 countries appear resilient, with high liquidity and significant capital buffers, existing credit and funding risks are being magnified in the region, driven primarily by adverse developments in the EU, an overhang of non-performing loans from banks in many SEE6 countries, and slowing economic growth," Hood warned. Therefore, all Western Balkan nations should pursue fiscal prudence, rebuild fiscal buffers and be prepared for further expenditure consolidation, the Bank urged. None of the six, except for Kosovo, has sizable deposits to draw down and all are expected to have restricted access to external financing markets in the period ahead, it added, advising all to also consider ways to improve employment opportunities. In spite of all the problems the crisis has brought about and growing uncertainties over the near-term future, deeper EU integration remains the best growth model for countries in the region, the Bank stressed. Meanwhile, the governments in the region "need to address longstanding structural reform challenges", Jane Armitage, World Bank country director and regional co-ordinator for South East Europe, was quoted as saying upon the release of the report. "This will allow them to take better advantage of the access to markets, inflows of foreign direct investment, bank finance, and remittances that closer integration with the EU offers," she added. Improving the business environment is a key measure both Serbia and Macedonia should take, according to the heads of the Bank's offices in Belgrade and Skopje. "In order to address longstanding structural reform challenges, Serbia has three priorities: Business Environment, Business Environment and Business Environment," Loup Brefort, World Bank country manager for Serbia, said in an email statement for SETimes on November 25th. "The country needs major improvement in the Doing Business ranking, not 'tinkering at the margin'.



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