Balkans Face Slowdown, World Bank Warns

Worker in a factory in the town of Gjirokastra | Photo by Telnis Skuqi

“After 2.2 per cent growth in 2011, early indications are that Southeast Europe’s … countries are experiencing a significant slowdown to 1.1 per cent growth in 2012,” said Zeljko Bogetic, lead economist for the Western Balkans at the World Bank

While the drop to 1 per cent growth would mark a sharp slowdown, Bogetic emphasized that the figure could be even worse, depending on how the Greek economic crisis develops.

In the short term, the report says that several countries must implement sustained fiscal consolidation to reverse adverse debt dynamics and establish a basis for more dynamic, long-term growth.

At the same time, the countries are facing a considerable structural reform agenda to improve productivity and competitiveness and reform their labour markets and public sectors.

According to the bank, with high levels of public debt and financing pressures, most countries in the region need to adopt significant fiscal consolidation programmes.

“This is the key short-term policy challenge for countries whose public debt-to-GDP ratio has been increasing rapidly,” said Bogetic, while underlining that “economic policy must strike a balance between the need to improve public finances and reduce macroeconomic vulnerabilities, on the one hand, and strengthen the economic policy environment for investment, growth, and jobs, on the other".