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Western Balkans to enter a recession in 2020, says World Bank

posted onJune 2, 2020
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Recession looms for Western Balkans as countries continue to grapple with the economic impacts of the COVID-19 (Coronavirus) pandemic. Regional growth in the region is forecast to be between -3 and -5.6 percent, according to the World Bank’s latest Regular Economic Report (RER).

The report is a collection of notes on the economic and social impact of COVID-19 on the Western Balkans region published in three parts. RER uses a baseline scenario and a downside scenario in the face of high uncertainty brought on by the pandemic. 

The baseline scenario assumes that the outbreak in Europe begins to slow soon enough, such that containment measures can be lifted by the end of June and a gradual recovery can begin in the second half of 2020. The downside scenario assumes the outbreak lingers and containment measures can only be lifted at end of August, with a recovery of economic activity only in final quarter of 2020. 

“The magnitude of the recession depends on the duration of the pandemic in Europe. While the economic impact of the ongoing pandemic in the region is difficult to forecast, there is little doubt that this pandemic is wreaking havoc on lives around the region - taxing health care systems, paralyzing economic activity, and undermining the wellbeing of people,” says Linda Van Gelder, World Bank Country Director for the Western Balkans.

“Over the medium-term, growth is expected to rebound strongly in the region, as economic activity gradually returns to normal, but this also depends on the length and intensity of the current crisis, as well as what steps policymakers take to address this pandemic.”

The recession in all Western Balkan countries will be driven by a significant drop in both domestic and foreign demand during the pandemic. Travel restrictions and social distancing measures have a particularly protracted impact on tourism and services.

Supply-side disruptions and lower demand further affect many manufacturing sectors, while liquidity constraints and acute uncertainty stifle investment.

 

The main risk for the Western Balkans is that a prolonged pandemic, as well as a deeper recession in the European Union, could make the unfolding economic crisis difficult to handle.

Governments in the Western Balkans have announced fiscal and social measures to support households and businesses during the emergency—ranging from 1 percent to 6.7 percent of GDP. Countries that entered the crisis with larger fiscal and external buffers have more space to finance larger support programs.

However, more people in the Western Balkans rely on self-employment, part-time work, and incomes from informal activities. These groups are vulnerable to the crisis but difficult to support through conventional measures. 

"It is estimated that, in the Western Balkans, without considering government response measures, the COVID-19 crisis would push at least 400,000 people into poverty, and up to 950,000 if the crisis is prolonged,"  the Washington-based institution said  in the second part of the report which discusses the social impact of COVID-19 on poverty and welfare, labour, health, education, air pollution, and social protection in the Western Balkans. 

"Emigrant workers, especially those whose employment is temporary or informal, may lose jobs in European countries hit hard by the pandemic and lockdowns. Some of those emigrants will return home, at risk of being unemployed without access to social protection. Remittance inflows to families in the Western Balkans will fall. " 

Roughly one in nine of the global population receives remittances, or about 800 million people, according to the United Nations. Early data show severe drops have already taken place.

The World Bank has said it expects global remittances to low- and middle-income nations to fall by $109 billion, or almost a fifth, in 2020 to $445 billion. 

The third part of the RER, to be launched this month, will focus on specific economic policy response areas —fiscal, external, and financial sector— and the crisis impact on the private sector as reported by firms.