Western Balkans at Risk of Social Upheaval on Extended Austerity

Western Balkan nations are facing a “higher risk” of social unrest as the region’s six economies, faced with some of Europe’s highest jobless rates amid a double- dip recession, battle to revive growth.

Albania, Bosnia-Herzegovina, Kosovo, Former Yugoslav Republic of Macedonia, Montenegro and Serbia, where unemployment ranges from 28 percent to 43.5 percent, need to “redouble their efforts to accelerate fiscal and structural reforms,” reduce debt and improve public-sector governance, investment climate and labor markets, the World Bank said today in its semi-annual South East Europe Regular Economic Report.

“After two years of deep crisis, a sluggish recovery, rising unemployment and poverty and a continuing recession” there is a danger that those countries “are caught in a vicious circle that reinforces the cycle of long-term austerity, low if not negative growth, high debt, and even higher risks of social upheaval,” the bank report said.

The region’s economies will contract 0.6 percent this year, led by a 2 percent decline in Serbia. Risks to an expected combined 1.6 percent growth next year “may be formidable” and “clouds on the horizon for 2013” include the global impact of the U.S. fiscal cliff as well as the uncertain recovery of the euro area and high commodity prices.

Bolstering Growth

Improving domestic infrastructure and financing is vital for the six economies to boost exports, half of which traditionally end up in western Europe. With “largely exhausted fiscal space” to bolster growth, except for Kosovo, the countries need to find other venues to stimulate output amid slowing credit activity and depressed domestic demand, the World Bank said.

Remittances, which account for an average 10 percent of gross domestic product, remained “relatively resilient to the euro-zone crisis” except in Serbia where they sank to 5.8 percent of GDP in 2012 from 9.5 percent in 2009.

To contact the reporters on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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