EBRD Reveals Western Balkans Growth Outlook For 2025-2026

(MENAFN- Trend News Agency) BAKU, Azerbaijan, September 25.​ Economic growth in the Western Balkans is expected to remain modest over the next two years, Trend reports citing the EBRD's latest reports.

The region is projected to grow by an average of 2.7 percent in 2025, rising to 3.2 percent in 2026, as ongoing global uncertainty and weak EU demand continue to weigh on exports, trade, investment, and remittances. Tourism-dependent economies like Albania, and Montenegro are particularly affected by uncertainty in EU markets, while export-driven countries such as Serbia, Bosnia and Herzegovina, and North Macedonia face slower trade growth.

Albania

Economic growth moderated to 3.4 percent year on year in the first quarter of 2025, driven by the services and construction sectors, while industry and agriculture experienced slight contractions. On the expenditure side, economic activity was broadly balanced, with notable contributions from increased government consumption and exports of goods and services. The current account deficit narrowed by over 40 percent year on year in the first quarter of 2025, reflecting changes across all major components. Inflationary pressures remained subdued, with the annual inflation rate standing at 2.3 percent in August. In response, the Bank of Albania reduced its benchmark interest rate to 2.5 percent in July 2025, the third rate reduction since July 2024. Real GDP growth is projected at 3.5 percent in 2025 and 2026. Downside risks include the possibility of softening demand within the Eurozone, declining remittance inflows and adverse climate factors such as drought, which could continue to adversely affect electricity generation and agricultural production. On the other hand, accelerated implementation of structural reforms and further advances in the integration into the European Union-further bolstered by the implementation of the EU's Growth Plan for the Western Balkans-could strengthen Albania's growth outlook.

Bosnia and Herzegovina

Economic growth decelerated to 1.7 percent year on year in the first quarter of 2025, underpinned by rising wages and remittances. Economic growth was constrained by subdued external demand and domestic political instability. The current account deficit persisted on an upward trajectory during the same period, following a near doubling in 2024. Inflation reached 4.8 percent year on year in July 2025, driven by increases in real wages and expansionary fiscal policy. Real GDP growth is projected at 2.2 percent in 2025, rising to 2.7 percent in 2026. Significant downside risks stem from the contraction of industrial production, heightened trade uncertainty, a slowdown in the European economy, volatility in commodity markets and continued political tensions.

Montenegro

Economic growth slowed to 2.5 percent in the first quarter of 2025, mainly due to reduced net exports after renovations at the Pljevlja power plant led to increased electricity imports. Meanwhile, private consumption and investment grew, supported by higher wages and pensions as well as infrastructure projects, including the Bar–Boljare highway. Robust domestic demand and higher electricity imports widened the trade and current account deficits, with the latter also impacted by a drop this year in both tourism and transfers. Inflation increased from 1 percent in September 2024 to 4.5 percent by July 2025, reflecting expansionary fiscal policy and rising real disposable income growth. The central government ran a deficit due to higher spending and slower revenue growth. Real GDP is forecast to grow at the rate of 2.6 percent in 2025 and 2.7 percent in 2026. Higher labour costs may negatively affect tourism, and the ongoing power plant reconstruction is expected to necessitate further electricity imports. Wage growth, on the other hand, should continue to fuel private consumption, with the Growth Plan supporting investment activity.

North Macedonia

Real GDP growth accelerated to 3 percent year on year in the first quarter of 2025 and further to 3.4 percent in the second quarter, primarily driven by construction, manufacturing and trade. During this period, household consumption was supported by rising incomes and moderating inflation, while road construction bolstered investment. Exports recovered in the first half of 2025 following a subdued export performance in the previous year. However, the current account deficit widened by 66 percent in the same period, reflecting lower surpluses in both services trade and secondary income. Following the removal of profit margin caps on certain staple goods, inflation rose to 4.8 percent by July 2025 before easing to 4.4 percent in August. Fiscal policy remains expansionary, with the revised 2025 deficit target set at 4 percent of GDP, aiming to balance fiscal consolidation with ongoing infrastructure investments. The deficit for the period January to July 2025 reached 2.5 percent of the projected GDP, as expenditures outpaced revenue growth. Real GDP growth is projected at 3 percent in 2025 and 2026, underpinned by strong domestic demand and the accelerated execution of public investment projects, particularly the construction of motorway sections along Pan-European Corridors VIII and X.

Increased municipal investment ahead of local elections in late 2025 may provide a further stimulus in the short term. Household consumption is expected to remain resilient, supported by rising real wages and higher government transfers. Risks to the economic outlook stem from constrained fiscal capacity and external volatility, especially due to structural adjustments in the European automotive industry and heightened global uncertainty.

Serbia

Economic growth moderated to 2 percent year on year during the first half of 2025, following two years of robust expansion. The principal drivers of growth were the information and communication services and manufacturing sectors, underpinned by the commencement of the serial production of electrical vehicles and increased tire output, while construction weighed negatively on overall growth. Social unrest adversely impacted trade, hospitality and related industries. While household and government consumption continued expanding, investment declined, and net exports were negative. The current account deficit doubled in the first half of the year. Inflation remained elevated at 4.9 percent in July 2025 reflecting both rising food prices sticky core inflation. Government expenditures grew at a faster pace due to higher wages and increased social transfers, resulting in a shift to a small deficit in the period January to July 2025. Real GDP growth is forecast at 2.5 percent in 2025, accelerating to 3.3 percent in 2026 supported by EXPO-related investment. Downside risks stem from ongoing domestic political tensions and potential global trade disruptions, which could constrain exports and inflows of foreign direct investment and weigh on structural reforms. However, stronger automotive exports and accelerated infrastructure investments could drive growth in the second half of the year.

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