SARAJEVO (Reuters) - The World Bank on Thursday revised up its forecast for the economic growth of six countries of the Western Balkans to 5.9% in 2021 after a 3.1% contraction in 2020 due to the COVID-19 pandemic, but cautioned that recovery remains fragile.
In its regular six-month report on the region, the lender estimated that the economies of Albania, Bosnia, Kosovo, Montenegro, North Macedonia and Serbia could grow 4.1% in 2022 and 3.8% in 2023.
"A faster-than-expected recovery is really driven by two main factors: domestic re-opening triggered by various robust recovery in domestic consumption and tourism-related demand and then very strong external conditions," said Richard Record, the lead country economist for the Western Balkans.
Record said that risks for maintaining the growth aligned with the same factors if they were reversed, meaning that consumption, remittances and tourism would be affected in the case of new pandemic-related lockdowns or international restrictions on movement.
In addition, the Western Balkan countries lag European neighbours when it comes to COVID-19 vaccination, with rates below 40% in most countries, except for Serbia and Kosovo.
Record said that the depleted fiscal space and high debt levels will continue to weigh on the region, and that political uncertainty will delay a recovery in both domestic and foreign investment that the region needs to boost potential output.
The bank also said that the labour market was recovering at a slower pace than the economy, and that structural reforms were needed to address job creation and economic transformation, including green transition.
Record said the report focused closely on macro-fiscal challenges and drivers of greening the region's growth, which called necessary but not easy to manage.
"The reality is that business as usual is no longer an option, because we are seeing changing of external preferences," Record told Reuters.