Economic growth in the Western Balkans is expected to accelerate moderately through 2025, driven by rising consumption and investment, according to the latest Western Balkans Regular Economic Report from the World Bank. 

The report forecasts that the economies of Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia will grow by 3.7% in 2025, a 0.2 percentage point (pp) increase from earlier projections. For 2024, the region is projected to see growth of 3.3%, also revised upward by 0.1pp.

While the regional growth forecast is robust, the World Bank points to differences in performance among the countries in the region. 

“Economic growth in the WB6 region is diverging, with Albania, Serbia, Montenegro and Kosovo enjoying strong growth driven by consumption and investment, while Bosnia and Herzegovina and North Macedonia face slower growth,” says the report. 

The first four countries are “seeing a faster recovery of consumption and investment”, in contrast to Bosnia and North Macedonia, "where lower external demand and domestic fiscal pressures are acting as a drag on growth,” according to World Bank economists. 

This revision is mainly due to higher growth forecasts for Serbia (+0.3pp), Bosnia (+0.2pp), and Kosovo (+0.1pp). In contrast, the growth outlook for North Macedonia in 2024 has been downgraded by 0.7pp compared to the Spring estimate.

Across the region, the development bank sees consumption as the main driver of growth this year, backed by “rising real incomes, easing inflation and an increased employment [level]”. 

“Domestic factors continue to support a moderate acceleration of growth in the Western Balkans,” said Isolina Rossi, lead author of the report and World Bank economist. Rossi also noted that “the gradual recovery of economic activity in the European Union will play a crucial role by bolstering exports from the region.”

However, the report cautions that the Western Balkans remain vulnerable to external pressures, including sluggish growth in the European Union – particularly Germany, a key trading partner for the region. The World Bank said that while economic convergence with more advanced EU economies is underway, sustaining growth will require structural reforms.

“Economic integration is a key driver of growth for small economies such as those in the Western Balkans,” said Xiaoqing Yu, World Bank country director for the region. Enhancing trade within the region and with the EU, reducing border wait times and integrating payment systems are among the key recommendations for fostering growth. Yu also stressed the importance of addressing demographic and labour market challenges, with a focus on improving education and health systems to help the region transition from middle- to high-income status.

Aside from consumption, investment activity is also rebounding in the region after its negative impact on growth in 2023. The World Bank report highlights that investment is projected to contribute positively to growth in 2024, adding 2.2pp to regional GDP. Serbia and Albania are expected to see significant investment growth, driven by foreign direct investment (FDI) and government spending on infrastructure projects. Serbia’s preparation for EXPO 2027 is noted as a key factor in this recovery.

The report also points to the complex external environment faced by the Western Balkans. The region’s widening current account deficit is partly attributed to weakened foreign demand for exports and stagnant remittance inflows, largely due to sluggish growth in the EU. In 2024, the current account deficit is projected to widen from 4.1% of GDP to 5.6%, with Albania, North Macedonia and Serbia experiencing the largest increases. However, foreign direct investment inflows are expected to continue financing the majority of these deficits.

The World Bank also noted the importance of managing migration for economic development. With nearly one in four individuals from the Western Balkans living abroad, remittances and the potential return of skilled migrants offer significant opportunities. “Managed effectively, migration can alleviate poverty, stimulate exports, and attract investment,” the report stated. It stressed that countries in the region should focus on creating favourable conditions for these potential benefits.

Looking forward, the World Bank calls for reforms to sustain the region’s growth momentum and achieve closer economic integration with the European Union. The EU’s recently adopted Growth Plan for the Western Balkans, which includes new financing opportunities and early access to parts of the single market, is seen as a key step toward this goal. Additionally, reforms to labour markets and social protection systems, particularly those aimed at increasing female labour force participation, could help boost productivity and growth.

Despite the positive outlook, the World Bank warns that risks remain. “Sluggish global growth, political uncertainty, higher financing costs, and increasing extreme weather events are all potential headwinds for the region’s economies,” the report said. Structural reforms will be essential to mitigating these risks and ensuring that the region continues to make progress toward sustainable economic growth and improved living standards.