The Balkans are bracing for a weaker economic outlook as global protectionism, slowing trade, and tight financial conditions weigh on a region still grappling with the legacy of past crises and chronic political instability.
According to the International Monetary Fund’s World Economic Outlook (WEO) published in October, growth across emerging and developing Europe — which includes most of the Balkans — is projected to slow sharply from 3.5% in 2024 to 1.8% in 2025, before edging up to 2.2% in 2026. The IMF warns that the new era of trade fragmentation and fiscal stress is testing smaller economies with limited policy space and fragile institutions.
Dual-speed growth
The report highlights a divergence between EU candidate states — such as Serbia, North Macedonia and Albania — and other parts of the Western Balkans. Those closer to the European Union benefit from integration-driven investment and trade, while countries with weaker institutional links face persistent vulnerabilities and limited access to capital markets.
“Balkan economies remain highly exposed to the euro area’s slowdown and to shifts in global supply chains,” the IMF said. “The region’s resilience depends on credible policy frameworks and the pace of EU convergence.”
Analysts say the region’s modest expansion masks underlying weaknesses. Serbia and North Macedonia are expected to post growth between 2–3%, while Bosnia and Herzegovina, Kosovo, and Montenegro will struggle to maintain positive momentum amid falling remittances and weaker tourism receipts.
Inflation pressures linger
Inflation across emerging Europe remains elevated, averaging around 5–6% in 2025, the Fund estimates. For the Balkans, price pressures are likely to persist due to high import dependency and currency pegs that limit monetary flexibility.
Central banks in Serbia and North Macedonia are expected to keep policy tight through 2025, mirroring the European Central Bank’s cautious stance. Policymakers face a delicate balance between protecting purchasing power and avoiding a deeper slowdown.
“The dilemma is clear,” said a regional economist based in Belgrade. “If rates stay high, growth will stall. If they ease too soon, inflation will rebound.”
Trade fragmentation: risk and opportunity
The IMF warns that rising geoeconomic fragmentation — driven by tariffs and reshoring trends in the United States, Europe and China — threatens to undercut growth in export-dependent economies.
For the Balkans, this shift brings both risks and opportunities. On the downside, the region’s role as a subcontractor in European manufacturing chains could shrink as global firms reduce cross-border exposure. On the upside, Western Europe’s move to “nearshore” production closer to the EU offers a chance for the Balkans to attract new investment in light manufacturing, logistics, and energy transition industries.
Yet chronic political instability, slow judicial reforms, and underdeveloped infrastructure remain major barriers to foreign direct investment. “Investors are looking at the Balkans, but the rule of law and governance issues continue to hold them back,” said an IMF official familiar with the region.
Fiscal constraints and debt risks
The Fund’s fiscal outlook shows that Balkan economies are running out of space for stimulus. Public debt has risen steadily since the pandemic, while global borrowing costs remain high. Serbia’s current account deficit is expected to widen to about 5% of GDP in 2025, and smaller economies such as North Macedonia and Montenegro rely heavily on external financing and remittances.
The IMF urges governments to pursue gradual fiscal consolidation, improve tax collection, and target social spending rather than adopting austerity. Without credible medium-term frameworks, the region risks renewed debt stress if global conditions worsen.
Industrial policy and reform gap
The report notes that industrial policy is making a global comeback — often in the form of green subsidies or strategic investment incentives. But the IMF cautions that poorly designed or politically motivated interventions can distort competition and drain public resources.
For the Balkans, aligning national industrial policies with EU standards on digitalization, renewable energy, and transparency will be essential to attract sustainable investment. “Investing in education, governance, and infrastructure will bring far greater long-term returns than short-term subsidy schemes,” the IMF said.
Political fragility meets economic headwinds
The global backdrop complicates matters. The IMF’s baseline scenario assumes persistent geopolitical tensions, high fiscal risks, and uneven AI-driven productivity gains. For small, open economies like those in the Western Balkans, any major shock — from energy price volatility to regional unrest — could quickly undermine fragile gains.
At the same time, EU enlargement fatigue and internal divisions across Balkan governments threaten to stall key reforms. With development aid from major donors declining and global competition intensifying, the region risks drifting to the periphery of Europe’s economic transformation.
Outlook: slow climb ahead
Despite some resilience in exports and services, the Fund projects that the Balkans will continue to lag behind the European Union average in both growth and income convergence. Inflation should gradually ease through 2026, but fiscal tightening and weak private investment will limit the pace of recovery.
“The Western Balkans face a narrow path to stability,” the report concludes. “Success will depend on credible institutions, fiscal discipline, and deeper regional cooperation within a fragmented global economy.”