Cause for Optimism in Albeit Slow Western Balkans Recovery

The slump is real. Gross Domestic Product, GDP, for the region as a whole is forecast to decline 4.8 per cent. Roughly 139,000 jobs were lost between January and June, while 300,000 people have been driven into poverty.

The pressure to keep production going despite the state of emergency led to deteriorating working conditions and treatment of employees. On the other hand, state intervention in the form of stimulus packages, pauses on loan payments and the payment of minimum wages softened the blow, somewhat.

Had there been no pandemic, the region - Serbia and Kosovo in particular - would have registered significant economic growth. Serbia's economy, for instance, was predicted to grow 5.1 per cent in Q1.

Paradoxically, both unemployment and labour force participation have gone down (to a record 7.1 per cent). The reason is simple; restrictive measures prevented many from seeking work (183,000 of them, if a direct correlation is to be established), among whom many (132,000) worked in the grey economy.

Condition state investment on changed business models

People wear protective face masks as they ride a bus in Belgrade, Serbia, 2020. Photo: EPA-EFE/ANDREJ CUKIC

In providing the initial response, the strongest tools available to the WB6 were their central banks.

In Serbia, the National Bank, NBS, lowered the reference interest rate three times (in March, April and June); increased the money supply to stimulate economic activity; set up a repo line with the European Central Bank that made funds up to one billion euros available; and supported the dinar by selling 1.5 billion euros-worth of foreign currency (to the detriment of exporters).

Particularly hard hit was the private sector and...