Serbia's economic recovery is gaining pace, with a rebound in private consumption and an increase in total investments, says the latest Western Balkans Regular Economic Report. The growth rate is expected to reach 6 percent in 2021 and then return to about 4 percent over the medium term.
This year's growth has been supported by the new fiscal stimulus package. However, the fiscal deficit is gradually decreasing in 2021, while a strong export performance has kept the current account deficit below projections. Going forward, consumption will remain the main driver of GDP growth over the medium term, while net exports will continue to make a negative contribution to growth.
"To unleash its growth potential and create new, high-quality jobs, Serbia needs to remove structural bottlenecks related to governance, the labor market, infrastructure, and the tax system," said Nicola Pontara, World Bank Country Manager for Serbia. "Green transition, enabled through a more efficient use of raw materials and energy, expansion of green industries and technologies, as well as an emphasis on less polluting and more energy-efficient industries, can help Serbia build a clean and resilient economy."
Macroeconomic stability will be maintained in the medium term and inflation, which has accelerated in recent months, is expected to return to the National Bank of Serbia target range. However, risks related to recovery in Europe, and globally, as well as rising COVID-19 cases, could impact this positive outlook.
Job creation and green transformation are common goals for all countries in the Western Balkans region, where economic growth is resuming after a COVID-19-induced recession in 2020. The outlook for the region has improved significantly, with GDP growth now projected to reach 5.9 percent in 2021, after a 3.1 percent contraction in 2020. Growth in the region is projected at 4.1 percent in 2022 and 3.8 percent in 2023.
The poverty rate for the region is projected to resume its pre-pandemic downward trend and fall by around 1 percentage point to 20.3 percent, close to its 2019 level.
However, the recovery remains fragile. Early warning signals from the labor market call for close policy attention. Job losses from the recession and its aftermath have disproportionately affected women and youth, which may set back efforts to raise the region's perennially low rates of labor force participation. Youth unemployment in the region rose to 37.7 percent in 2021, up 5.4 percentage points from June 2020, further worsening youth employment prospects.
"As the Western Balkans countries look to a post-pandemic future, their policy approach will need to focus on addressing key impediments to job creation and economic transformation, including green transition," said Linda Van Gelder, World Bank Country Director for the Western Balkans. "All six countries would benefit from reforms in the business environment, governance, and digitalization, which would contribute to growth and close the gap with EU countries."
Global strides toward climate action are causing fundamental changes in society. Consumer and investor preferences are shifting, green technologies and new business models are disrupting more markets, and green policies are reshaping economic landscapes. As such, greening a country's economy is becoming a decisive factor in international competitiveness and the ability to attract international finance and investments.
The Western Balkans now find themselves at a key decision point regarding the impending green transition. Effectively managing this transition, including the many policy tradeoffs, will need to be a core focus of policy attention for the region in the years ahead.
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Download the report: http://documents.worldbank.org/curated/en/900381634670558017/Greening-the-Recovery
