PRISTINA, September 27 – Growth in Kosovo is projected at 3.6 percent in 2016, down slightly from 3.9 percent in 2015, and is forecasted to reach 3.7 percent by 2018, according to the latest Southeast Europe Regular Economic Report (SEERER), launched today in Brussels.
Fiscal adjustment measures, such as tax reforms and the fight against informality, continued to boost revenue performance in the first half of 2016. However, the unanticipated large number beneficiaries of social transfers program for war veterans added to fiscal pressures and pushed the deficit to about 2.5 percent of GDP. FDI fell by 36 percent in the first half of 2016. Most of the FDI this year continued to be attracted by real estate, rentals, and business activities, followed by the financial sector. The financial sector is performing well, with profits high, Non-Performing Loans low, and lower interest rates that are boosting lending.
The outlook remains positive. Economic growth in Kosovo is supported by domestic demand however more needs to be done to gradually shift to higher domestic productivity and enhanced external competitiveness, if Kosovo is to close the income gap with Europe in the medium term.
At the regional level, economic growth is expected to reach 2.7 percent in 2016, up from 2.2 percent in 2015. Moderate acceleration of growth is projected to continue through 2017 and 2018.
“Underpinning the acceleration in growth was Serbia, the region’s largest economy,” says Barbara Cunha, World Bank’s Senior Economist and lead author of the report. “Serbia moved from 0.7 percent growth last year in the aftermath of the 2014 floods to an expected 2.5 percent this year.”
2015 |
2016f |
2017f |
2018f |
|
Real GDP growth (percent) |
||||
Albania |
2.8 |
3.2 |
3.5 |
3.5 |
Bosnia and Herzegovina |
3.0 |
2.8 |
3.2 |
3.7 |
Kosovo |
3.9 |
3.6 |
3.9 |
3.7 |
Macedonia, FYR |
3.7 |
2.0 |
3.3 |
3.7 |
Montenegro |
3.2 |
3.2 |
3.6 |
3.0 |
Serbia |
0.7 |
2.5 |
2.8 |
3.5 |
SEE6 |
2.2 |
2.7 |
3.2 |
3.6 |
Other economies in the region are expected to maintain growth of between 2.8 and 3.6 percent in 2016, with the exception of a slowdown in FYR Macedonia. In many countries, growth is translating into jobs. Employment rose by 4.7 percent in Serbia and 6.7 percent in Albania in the first half of 2016.
“Stronger growth is starting to have a positive impact on poverty and unemployment in the region,” notes Ellen Goldstein, World Bank Regional Director for Southeast Europe. “While the unemployment rate remains high, at around 25 percent on average, rates declined in five of the six countries of Southeast Europe this year.”
Global economic circumstances do not favor expansion, but for small economies like those in Southeast Europe, internal reforms can stimulate stronger outward-oriented growth even in a global slowdown.
“Countries with strong reform programs have seen a rise in investment which became a solid driver of growth in the first half of 2016,” says Katia Vostroknutova, World Bank’s Lead Economist and one of the authors of the report. “Private investment contributed strongly to growth in Serbia and Albania, and fiscal deficits and public debt declined in response to reforms in these countries.”
The average fiscal deficit in the region declined from 3.6 percent in 2015 to 3.3 percent in 2016. This average masks considerable variation among countries, with public debt rising in those countries where fiscal accounts have been overstretched by lax public spending.
The report concludes that the region has continued growing in the face of a difficult European and global environment. To sustain growth, further reforms are advised to maintain macroeconomic stability, stimulate private sector activity, enhance the effectiveness of the public sector, and build resilience to external shocks.
