Economic Overview of Western Balkans Countries in the 3rd quarter 2018

The European Commission published on October 12, 2018 an updated quarterly overview of economic developments for the Western Balkan countries

The economic upswing continued in the Western Balkans during the second quarter of 2018 with annual GDP growth accelerating to 4.3% across the region up from 3.6% in the first quarter and 1.9% in the same quarter a year before. Despite further progress in fiscal consolidation, high public debt levels remain a source of vulnerability in most countries.


In October 2018, Albania issued a 500 million EUR 7-year Eurobond and achieved a favourable 3.55% interest rate, 2.2 points below the last 5-year issuance in 2015. The Government intends to refinance an earlier Eurobond, thus reducing pressure on the domestic lending market, and extend the maturity of public debt.

Albania’s real GDP increased by 4.3 % y-o-y in the second quarter after growing by 4.5% in the first three months. On the demand side, growth was mainly driven by household consumption which strengthened its solid growth to 3.3 % yo-y, supported by employment growth, moderate inflation and low interest rates.

Exports of goods and services continued their recovery in the second quarter with 3.9 % while imports of goods and services grew more slowly with 2% (y-o-y). Overall exports increased their share of GDP to 34.1% whereas imports eased slightly but remained on their elevated level of almost 50% of GDP. On the supply side, electricity production and processing industries contributed significantly to GDP growth in 2018 so far. Construction decelerated as did the services sector, mainly due to base effects, while both sectors continued to contribute positively to the economic performance.

The labour market reflected the on-going economic expansion. Youth unemployment remains high but it has been continuously declining from its peak of 34% in 2015. FDI inflows are the major financing source of the current account deficit with a coverage ratio of 152 % over the first half of 2018. Gross external debt increased to EUR 8.1 billion at the end of the second quarter which corresponds to 66.8 % of GDP. Foreign exchange reserves increased to EUR 2.96 billion.

Western Balkans Countries

In Serbia, economic growth was driven by all domestic demand components while Albania’s growth performance relied mainly on household consumption. Economic growth accelerated in most countries of the Western Balkans in the second quarter of 2018, continuing a trend that started in early 2017.

Nonetheless the ongoing economic recovery has not yet translated into more dynamic job creation. With the exception of Montenegro where employment growth accelerated in the second quarter, overall, the average job growth rate in the Western Balkans fell to 0.6% from 1.5% in the first quarter. Nevertheless, the labour market situation in the region remains challenging with unemployment rates ranging from 11.9% in Serbia to 29.4% in Kosovo.

As the result of narrow production bases and competitiveness challenges, merchandise trade deficits remain very high across the Western Balkans, ranging from around 13% of GDP for Serbia to 18% or above for Macedonia, Albania and Bosnia and Herzegovina and equal to 44% for Kosovo and Montenegro. Trade deficits are only partially offset by surpluses in the services account and in current transfers, resulting in large foreign financing needs.

Bank lending continued to be more supportive of growth in the Western Balkan region, as credit growth accelerated in the second quarter of 2018, compared to the first quarter, in Montenegro and Bosnia and Herzegovina as well as in Serbia and Albania.

In the first eight months of 2018, the economic upturn continued to support the reduction of fiscal deficits in most countries in the Western Balkan region. However, most countries also continued to experience underperforming capital expenditure, reflecting persistent weaknesses in the planning, selection and management of public investment.