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WESTERN BALKANS REGULAR ECONOMIC REPORT
No.17 | Spring 2020
Public Disclosure AuthorizedThe Economic and Social
Impact of COVID-19
WESTERN BALKANS OUTLOOK
Public Disclosure Authorized
Public Disclosure Authorized
“You and me” by Tanja Burzanovic (Montenegro)
The RER No. 17 is a collection of notes on the Economic and Social Impact of COVID-19 that will be
published in two parts. This first part includes three Notes: “Setting the stage: Reviewing the state and vul-
nerabilities of the Western Balkan Economies as they face COVID-19”; “Outlook: Hard Times Require Good
Economics”; and the Western Balkan Country Notes. The second part discusses the impact of COVID-19
Public Disclosure Authorizedon specific economic areas, social sectors, and on poverty and income distribution in the region and will
be published in a follow-up e-launch in May.
THE ECONOMIC AND SOCIAL IMPACT OF COVID-19
Western Balkans Outlook: Hard Times Require Good
1
Economics
Like Europe and the rest of the world, the The Western Balkans region is
Western Balkans are projected to endure projected to enter a recession in 2020
recessions in 2020, their extent depending whose magnitude vitally depends on the
on the duration of the COVID-19 pandemic. duration of the COVID-19 outbreak in
This crisis is an unprecedented shock that has Europe
taken the world and its economy by surprise. In the baseline scenario, the recession
As countries shift to stay-at-home mode to slow would be considerable, with growth in the
and stop the spread of the virus, governments region contracting by about 3 percent but
and societies are dealing with the high human, with substantial differences by country
social, and economic costs. By April 27, there based on economic structure and pre-crisis
4 Assuming the COVID-19
were more than 3 million confirmed cases of vulnerabilities.
COVID-19 affecting at least 180 countries outbreak is largely contained by mid-2020—
and putting more than 3 billion people in allowing economic activity to resume as
lockdowns. 2,3 measures to contain the virus are lifted and
financial market and supply-chain disruptions
In this uncharted territory, economic ease—real GDP growth for the year would fall
forecasting is particularly challenging by 3.1 percent. Because their economic structure
because of high uncertainty arising from depends on service exports, Montenegro,
extraneous factors, such as the scale and Albania, and Kosovo would be hit hard, with a
impact of interventions like social isolation, drop of over 8 percentage points (pp) from pre-
progress in developing a vaccine, the extent COVID-19 2020 projections (Figure 1). Their
of supply disruptions, and changes in human economies are projected to contract by about
behavior. The projections in this note are based 5 percent. BiH, Serbia, and North Macedonia
on two scenarios for the COVID-19 outbreak are expected to experience only slightly less
and containment measures. The baseline acute recessions, by 3.2, 2.5, and 1.4 percent
scenario assumes that the outbreak in Europe compared to the pre-COVID-19 projections.
begins to slow soon enough that containment
measures can be lifted by the end of June and In all Western Balkan countries, the
gradual recovery can start in the second half of recession will be driven by a plunge in both
2020. In the downside scenario, the outbreak domestic and foreign demand during the
lingers so that containment measures cannot COVID-19 crisis. Global and national virus
be lifted until late in August, with economic containment measures, from social distancing
activity beginning to recover only in Q4. to business shutdowns, generate supply-side
disruptions and reduce household incomes and
1 This note has been prepared by Natasha Rovo, Lazar Sestovic and
Collette Mari Wheeler. The note benefited from comments from
Marc Tobias Schiffbauer, Edith Kikoni, Enrique Blanco Armas, 4 Please see the “Heatmap for the relative COVID-19 vulnerabilities
Jasmin Chakeri, Gallina Vincelette and Michael Lokshin. in the Western Balkans” in Figure 5 of the companion RER note
2 Update as of April 25; source: COVID-19 Tracker. “Reviewing the State of the Western Balkan Economies as they face
3 Source: http://dailym.ai/2UuMRCu COVID-19”.
WESTERN BALkANS OUTLOOk | 1
WESTERN BALKANS REGULAR ECONOMIC REPORT NO.17
WESTERN BALKANS OUTLOOK: HARD TIMES REQUIRE GOOD ECONOMICS
consumption—a twin demand-supply shock. in tourism receipts for 2020, which subtracts
Services may suffer a more protracted impact significantly from their 2020 GDP growth
while travel restrictions and social distancing because for all three countries direct and indirect
measures are in place, and they account for a tourism receipts are estimated to account for
particularly high share of total employment 15 to more than 25 percent of GDP. Economic
in the region—75 percent in Montenegro recovery in transport and tourism is also
and about 50 percent in the other countries. expected to be more gradual, so that growth
Household consumption will also be affected later in the year would not compensate for the
by lower remittances: they are projected to summer season losses. Only Kosovo tourism
drop by 10 pp year-on-year in the region, with may resume faster as travel bans ease as 80
Serbia and Montenegro likely to experience percent of its travel service exports are driven
declines of almost 20 percent. Investment is by diaspora tourism.
also expected to plunge in 2020 due to both
liquidity constraints and acute uncertainty, Figure 1. Real GDP Growth, Two Scenarios for
with Kosovo hit hardest by a fall of 21.5 pp as 2020
delayed public investment and lower diaspora Real GDP growth, percentage points
6
4.1 3.9 3.7
investment in real estate exacerbate the drop 4 3.3 3.4 3.6 3.2
(Table A.1). In Albania, the potential erosion 2
of disposable income and consumption, 0
-2 -1.4
especially consumption of durables, will delay -2.5
-4 -3.2 -3.2 -3.1
-4.2 -4.5
-6 -5.0 -5.3
the reconstruction necessary because of the -5.6 -5.7
earthquake. Western Balkan exports of both -8 -6.9
-10 -8.9
services and goods are also projected to go -12 -11.3
down—total export growth in 2020 would -14
range from -0.2 percent in North Macedonia ALB BIH KOS MKD MNE SRB WB6
J Pre COVID-19 J Baseline J Downside
to -25 percent in Albania—because of less Source: World Bank staff calculations.
tourism and less demand for goods from the Note: For the Western Balkans, real GDP growth is the weighted average.
For Albania, the pre-COVID scenario includes the effects of the earthquake
EU and other trading partners. Imports are also and reconstruction. See Table A.1 for a more detailed forecast of real GDP
growth and its spending components.
expected to decelerate considerably.
Deeper integration in global value chains
A particularly severe recession will affect and dependence on EU markets equates to
Montenegro, Albania, and Kosovo because supply-side disruptions and a significant
of their reliance on tourism. Globally, decline for export-oriented industry,
according to the latest UNWTO assumption, especially for BiH, North Macedonia, and
international tourist arrivals could fall by as Serbia. While sectors oriented to the domestic
much as 30 percent, much higher than the market or connected to online services—such as
5 In agriculture, information and communication,
global decline of 4 percent seen in 2009.
the baseline scenario, Albania, Kosovo, and and health—are less likely to be directly
Montenegro experience a 20‒35 percent fall affected by the pandemic; manufacturing may
see a deeper drop in 2020, from an estimated
5 UNWTO. 2020. International Tourism Arrivals Could Fall by 20- 6.5 percent in BiH up to 9 percent in Serbia.
30% in 2020. March 26th, 2020. https://www.unwto.org/news/
international-tourism-arrivals-could-fall-in-2020 Similarly, in Q2 in North Macedonia,
2 | WESTERN BALkANS OUTLOOk
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