Economic growth in the Western Balkans is expected to decelerate slightly in 2025 due to weaker external demand and rising uncertainty over global trade policies, the World Bank said in a report on Wednesday.
In its latest Western Balkans Regular Economic Report, the Bank forecast the region’s economy—which includes Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia—will expand by 3.2% in 2025. That marks a downward revision of 0.5 percentage points from earlier projections. Growth is projected to accelerate to 3.5% in 2026.
“We are seeing some positive economic trends in the Western Balkans that underscore the region’s resilience and should underpin firm economic growth,” said Xiaoqing Yu, World Bank Division Director for the Western Balkans. “Lower inflation and rising wages support consumption, and public investments are beginning to pick up.”
However, Yu warned that increased domestic uncertainty in several countries, along with slower economic activity in the European Union and heightened global trade tensions, could dampen growth momentum in the coming year.
The report noted that global trade uncertainty is expected to weigh on the region’s outlook, primarily through its impact on the euro zone, the Western Balkans’ largest trading partner. A slowdown in the euro zone could reduce trade flows, investment, and remittances—key sources of income for many households in the region.
To sustain growth during periods of external volatility, the Bank urged policymakers to diversify economic growth sources and reinvigorate structural reform agendas. Priority areas include reducing labor market barriers—particularly those affecting women—deepening regional economic integration, improving governance, and fostering competitive markets to raise productivity.
The report also stressed the need to accelerate European Union accession reforms. These include joining the Single Euro Payments Area (SEPA) and establishing “green lanes” to facilitate cross-border trade. Such measures would enhance business confidence, attract foreign investment, and stimulate job creation.
Climate change and the green transition are also reshaping the region’s labor markets, the Bank said. Rising temperatures and extreme weather events, such as floods, droughts, and wildfires, are altering employment patterns and requiring workforce adaptation.
The six Western Balkan economies should prioritize reforms to their social protection and employment services systems to shield workers from climate-related shocks and prepare them for jobs created by the shift to a low-carbon economy, the report said.
Strengthening income protection mechanisms and ensuring flexibility in social protection systems would prevent vulnerable groups from sliding into poverty during economic shocks. Meanwhile, investing in upskilling and reskilling for green jobs would help workers meet evolving labor market demands and support long-term economic growth.
