South East Europe faces tough road to recovery, says World Bank

19 Dec 12

South East European countries risk becoming stuck in long-term austerity, low growth and high debt unless they redouble their efforts to speed up fiscal and structural reforms, the World Bank has warned.

By Nick Mann | 19 December 2012

In its latest Regular economic report on the region, the Bank forecasts the combined gross domestic product of the six countries that make up the South East European group will fall by 0.6% this year, with Serbia, which makes up half the economic activity in the region, shrinking by 2%.

Along with the other countries in the group - Albania, Bosnia & Herzegovina, Kosovo, FYR Macedonia and Montenegro – Serbia is expected to see a return to growth next year, as its GDP increases by 2%. This will help the group as a whole to post economic growth of 1.6% in 2013, the Bank predicted.

However, it also highlighted ‘formidable’ risks to this outlook, including the potential impact of the US ‘fiscal cliff’, the uncertain recovery of the eurozone and high commodity prices. Households also face the risk of a new food price shock, which could increase poverty and put pressure on the middle class.

Željko Bogetić, World Bank lead economist and coordinator for economic policy for the Western Balkans, said:‘In this fragile environment, Western Balkan governments need to pursue reforms that make a difference for long-term growth and jobs.

‘What is needed first and foremost is more intensive policy reform to reduce public debt and accelerate structural reforms, especially in public sector governance, the investment climate, and labour market.’

Serbia, Albania and Montenegro in particular are urged to persevere in reducing their fiscal deficit and bringing down debt, but at the same time improve the investment climate and reform their labour markets and the public sector.

‘If such accelerated reforms materialise, external support – well-coordinated and targeting the region as a whole, not just individual countries – from the EU and global international financial institutions could help ease the transition to a more sustained growth in medium term,’ the report added.