Key economic indicators in WB6 to 2022

The GDP of the Western Balkans in 2022 is calculated to have increased by an average of 3.75% with a decrease from the previous year with 4.75% or 1.4 times less average growth. Per capita income in 2021 in the Western Balkans is on average 12,298 Euro/year (PPP). Kosovo and Albania are presented with the lowest value of income per capita (see the table below). While Montenegro, Serbia, North Macedonia have an income per capita above the average level.

Meanwhile, gross industrial production [1] results in the highest level of growth in Albania (2.8%) after a robust growth in 2021 with 26.2% more than a year ago. While the lowest level of gross industrial production occurred in Montenegro (-3.3%). The main influencing factors in this trend, such as: oil price, exchange rate, export, but also internal factors, such as: public expenditure, consumption expenditure and import have influenced the gross industrial production and are also reflected in the positive indicators. in 2021 also for Bosnia-Herzegovina (9.8%) and Serbia (6.3%).

The lowest level of unemployment in 2022, as a downward trend from 2021, according to Labor Force Surveys (LFS) is found in Serbia (9.4%) and Albania (10.5%), while the highest level is in Kosovo (24.2%), Bosnia-Herzegovina (15.4%), North Macedonia (14.4%) and Montenegro (14.5%).

One of the most negative influences in curbing the economy of the Western Balkans in 2022 is inflation. It has been influenced, both by external factors, but also by internal factors, related to the structure of the Balkan economies and the integration of sectors in the value chain of international trade. The highest level of average annual inflation in 2022 is in North Macedonia (14.2%), while the lowest level of average annual inflation is in Albania with 6.7%.

High energy and food prices have pushed inflation to levels not seen for many years in the 5 Balkan countries, except Albania. Based on the reality of the energy market, still unliberalized in the selling price of electricity for households and small businesses, this element has been used to control the level of inflation by keeping the price frozen, but at a cost of over 28 billion ALL from state budget taxes. This effect, which was not paid by the citizens in the price of energy, was actually paid through taxes by a part of the citizens, in taxes on fuel, on consumer goods and services, as well as in labor taxation for the category of employees with an income of middle level.

The fiscal balance is seen at a better positioned level in Bosnia-Herzegovina (-1%) and in Serbia (-3.1%) and Albania (-3.6%), which are also considered below the average level of the fiscal deficit of the Balkans for 2022. Whereas Kosovo and Montenegro with -5.2% fiscal deficit and North Macedonia with -4.5% deficit level are above this average. However, it should be mentioned that the trend of North Macedonia is to reduce the fiscal deficit compared to 2021, while in Kosovo and Montenegro there is an increase. This also indicates an increased pressure on spending to cope with the high level of prices and to pay directly from the budget the relief package for the increased costs for businesses and the population in need.

Kosovo has the lowest level of public debt in 2022 (19.6% of GDP), followed by Bosnia-Herzegovina (34% of GDP) and they are below the Balkan average (49.13% of GDP). North Macedonia, Albania, Serbia, and Montenegro are significantly above this average level of the public debt of the Balkans, but with a downward trend from 2021 and 2020. The largest reduction of public debt from 2021 has been achieved by Montenegro with 12% less and Albania with 4.4% less.

The highest negative current account [2] in 2022 is in Kosovo (-10.2% of GDP) and Montenegro (-13.3% of GDP). Meanwhile, Serbia, North Macedonia, Albania, and Bosnia-Herzegovina have a level below the Balkan average (see table for indicators).

The indicator above, which is also influenced by the flow of foreign direct investments (FDI), is seen to be higher in absolute value in Serbia (4.4 billion Euros) and in Albania (1.2 billion Euros). Meanwhile, other countries have an investment value from 615 million Euros in Bosnia-Herzegovina to 833 million Euros in Montenegro. Kosovo in 2022 has an increase in the value of foreign investments with an 83% increase, which indicates a good climate for foreign investments.

WB6’s main exports [3] are energy and materials and electrical equipment, as well as machinery and transport equipment, without forgetting the part of IT services, which has been growing in recent years. In years, if you look at the export statistics of the previous 10 years, there is a qualitative increase that indicates the inclusion of technology in the generation of added values ​​of the economy for the foreign market.

From WB6 statistics, studies, and analyses, the share of cross-border trade in relation to GDP, which each country occupies in the regional market, has changed slightly in relation to the traditional partners that each country has had. In the structural plan of export destinations, WB6 economies are partners and members of agreements with the same EU countries.

While trade in goods is increasing among WB6 countries, the situation is different and with little progress for trade in services.

This fact shows that even though commitments to free trade, to remove barriers, to compete through increased productivity and the quality of services and goods have enabled the strengthening of economic cooperation, the economic operators of WB6 still feel ineffective to successfully pass the limits of local markets.

Competitiveness is not the main feature of economic development policies, although increasing resources and capacities have been committed by governments to this end. Interregional trade is still a key component of exports in BP, although it is not the most substantial part of exports, except for Kosovo and Montenegro whose main exports are with EU countries, as well as Albania and Serbia. which are more oriented towards the markets of the EU countries. Meanwhile, North Macedonia and Bosnia-Herzegovina have a balanced split between exports within the region and exports outside the region.

Inter-regional trade is focused on semi-finished and agricultural products. Based on this fact, interregional trade has not had an impact on the change in the structure of exports and,

in the future, it may play a small role in the decline in relation to the total volume of exports. However, the increase in consumer demand and the increase in access to credit, influenced by the still visible limitations in competitiveness by BP companies, continue to influence the maintenance of a high trade deficit. The need to increase the technology level of traditional and new products, as well as to improve macroeconomic indicators, has forced the governments of BP in the last 10 years to adopt reforms in all the main productive sectors of the economy.

These reform initiatives have been the strongest push and incentive to focus on attracting FDI. The composition of FDI for this period consists of the automotive industry and car parts, renewable energy and tourism and technology services. FDI in BP is still considered limited, if compared to the indicator of FDI per capita in EU countries, as well as the potential that exists to absorb investments from these countries, or even from other rapidly developing countries.

Thus, FDI per capita in BP is half of FDI per capita in EU countries. Investments in research and development continue to be at low levels, reaching up to 1% of the total budget expenditures that are planned and realized in BP, except for Montenegro, which has planned increased expenditures for 2022. This approach, if it does not change, will cause a shortage in the product of scientific research, but also in the goods and services that are generated by advanced technology.

The lack of attention needed to change both the capacities needed, but also the resources to enable the change will produce negative effects that time will not be able to heal or systematize, since the development of this sector requires its own time to be effective in economy and social life. It is appropriate that strategies for development should consider a balance between long-term productivity and what can be considered future products, which are considered valuable capital reserves to reshape the economy in difficult moments, as well as to serve growth quality of the economy towards more complex products.

However, WB6 countries have increased efforts to improve the research and innovation sector by adapting strategies, as well as regulatory frameworks and action plans to change current performance and increase the impact of innovation on education and the economy [4].

For this purpose, this approach, which is expected to advance further in 2023, is seen in certain collaborations at the regional level, having for guidance the legal framework of the EU, as well as some objectives set with the launch of the Berlin Process. The direct impact of the war in Ukraine on the region’s banking sector has been limited.

The stability of the financial sector has been maintained, but a slowdown in growth and higher inflation keeps the financial sector under slight and inevitable pressure. Non-performing loans remain on a downward trajectory (by 4.4 percent on average in 2022).

Capital reserves have been held broadly stable, as has bank profitability. Credit growth has remained strong, averaging 10.2 percent year-on-year through mid-2022, helping to drive growth.

However, tighter global financing conditions, a slowdown in domestic and external demand, and weakening business and consumer confidence are sure to affect the region’s financial sector [5].

[1] Industrial output refers to the volume of output generated by industrial sectors such as mining, manufacturing, energy, and utilities.
[2] represents imports and exports of goods and services, payments made to foreign investors and transfers such as foreign aid
[3] https://wiiw.ac.at/keeping-friends-closer-why-the-eu-should-address-new-geoeconomic-realities-and-get-its-neighbours-back-in-the-fold-dlp-6487.pdf, faqe 18
[4] https://wiiw.ac.at/towards-effective-industrial-policy-in-the-western-balkans-dlp-6493.pdf
[5] https://openknowledge.worldbank.org/server/api/core/bitstreams/8fbb19e3-e2b9-5522-9c19-e001ac29465f/content, faqe 3