Launch of World Bank’s latest South East Europe Regular Economic Report
Devastating flooding in some countries brought the economy of South East Europe (SEE6[1]) to a standstill in 2014, with growth of only 0.2 percent, according to the World Bank’s latest South East Europe Regular Economic Report (SEE RER) launched today in Belgrade.
“External
demand for SEE6 exports was a positive force for economic growth in
2014, despite the weak Eurozone performance and disappointing global
recovery, said Ellen Goldstein, World Bank Country Director for South East Europe.
However, political uncertainty, and delayed or reduced investments
exacerbated the effects of the profoundly devastating floods that hit
the region in 2014.”
“Unfortunately,” Goldstein added, “growth of only 0.2 percent is insufficient to improve living standards or make a dent in the region’s high unemployment rate.”
The
weak regional economic performance masks notable differences among the
SEE6 countries, the report says. Serbia is estimated to have contracted
in 2013 for a third time since the global crisis, and Bosnia and
Herzegovina is stagnating. Economic growth rates in Kosovo and
Montenegro are estimated to have moderated in 2014. Only Albania and FYR
Macedonia have shown signs of a more sustained recovery thanks to
increasing exports.
Weather shocks a major factor in economic performance
The
SEE RER reports that weather shocks have been primarily responsible for
the poor economic performance in SEE6, adding to the evidence that SEE6
countries’ economic performance is extremely vulnerable to the weather.
The
floods in May 2014 are estimated to have cost Bosnia and Herzegovina
around 15.0 percent of GDP and Serbia around 4.7 percent of GDP in lost
output and damages. Damaged power generation facilities hurt businesses
in Serbia, and damaged crops harmed agricultural output in Bosnia and
Herzegovina. Almost no segment of the economy went unharmed in these
flood affected economies. The significant impacts of the recent weather
shocks in 2014 suggest that SEE6 countries are not well-prepared for the
increased weather variation.
The report says that structural challenges continue to hold back potential growth in SEE6. Gallina A. Vincelette, Program Leader and one of the authors of the SEE6 RER, explains,“The
functioning of the labor markets across the region is anemic with the
persistently high unemployment rates, low labor force participation
rates, and sluggish formal job creation. Even though some progress has
been made in easing the burdens of the investment climate, there is
still room for improvement. The public sector is large and inefficient
in many countries in the region. Improved connectivity of the region
through physical and institutional linkages among the SEE6 countries, to
the European Union, and to the rest of the world, will help competitive
firms from the region reach new markets and foreign investors come to
the region.”
Looking ahead
According
to the report, in 2015, the SEE6 region is expected to recover
modestly, with aggregate growth projected to average 1.3 percent.
Growth
is likely to be held back in 2015 by a weak recovery in Bosnia and
Herzegovina and Serbia. The rest of the region is expected to grow by
over 3 percent in 2015, with economic growth reaching 3.8 percent in FYR
Macedonia.
Growth
prospects are dependent on external factors, including a sustained
recovery of external demand, especially in Europe, and stabilization of
international energy prices at around current levels.
Economic
activity in SEE6 is dampened by weak domestic demand as consumer and
business confidence remain weak over lingering political uncertainty,
chronically high unemployment, and banking systems saddled with high
nonperforming loans. Therefore, the report emphasizes that economic
growth in the near- and the medium-term in SEE6 can be supported through
sound and well-prioritized economic policies.
[1] SEE6
are Albania, Bosnia and Herzegovina, Kosovo, Former Yugoslav Republic
of Macedonia (FYR Macedonia), Montenegro, and Serbia.
