October 4, 2018 / 8:07 AM / 12 days ago

World Bank raises growth forecasts for Western Balkans, urges investments

BELGRADE (Reuters) - The World Bank revised higher its 2018 economic growth forecast for the Western Balkans to 3.5 percent, up from a previous 3.2 percent, but said more investments and exports were needed for faster and more sustainable expansion.

In a report published on Thursday, the bank said the region, which comprises Albania, Bosnia, Kosovo, Macedonia, Montenegro and Serbia, would also grow by 3.5 percent in 2019 and by 3.8 percent in 2020.

The lender said tax reforms and faster growth had led to higher revenues which some countries used for spending and capital investments.

“But such effects are temporary and costly to sustain: in the longer term they heighten fiscal vulnerability,” it said.

Before the 2008 global financial crisis, the Balkan states had average growth of 5 to 7 percent a year. Most have since sought to dispose of state-run firms and reduce their public sectors to cut deficits and debt.

The 2018 growth forecasts have also been revised higher for most of the individual countries in the region, the bank said.

Kosovo and Albania are expected to grow by 4 percent, while Montenegro’s growth is projected at 3.8 percent, down from 4.3 percent last year.

Growth in Bosnia would be stable at an estimated 3.2 percent, the report said. Serbia’s economy has rebounded to 3.5 percent growth after last year’s weather-related slowdown.

Macedonia’s growth also recovered from stagnation in 2017 to 2.5 percent this year, on restored investors confidence.

In the report, the World Bank welcomed the creation of more than 90,000 jobs across the region in the first half of 2018, but said the labor market response to growth was slow.

“In some countries, inactivity and emigration rather than new job creation explain the fall in unemployment,” it said.

The World Bank urged more investments and exports to help boost growth. Bosnia, Macedonia, and Serbia have all seen a rise in their exports, but consumption and large infrastructure projects have also pushed up imports, the report said.

The bank also warned about risks including a possible tightening of financing conditions in international capital markets and domestic and regional political stability.

Reporting by Aleksandar Vasovic; Editing by Gareth Jones

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