Economic challenges of the region in 2025: How will global trends affect the lives of citizens?

Although the European Commission has forecasted economic growth for the Western Balkans in 2025, regional economic experts remain cautious with their assessments. For Kosovo Online, they point to numerous external factors that will shape the fate of this part of the world, as well as how these global trends will affect the daily life and standard of living of citizens. They agree on one thing - regional cooperation could be key.

Written by: Petar Rosic

The European Commission, in its forecast for the 27 EU member states and nine candidate countries, has predicted that Serbia will experience stronger economic growth of 4.2 percent in 2025.

The growth engine is primarily domestic personal consumption, which is expected to increase over the next two years, and is also supported by the liberalization of banking credit policies and an increase in demand in the economy and households for loans.

The forecast assesses that Serbia will continue to expand its export market thanks to direct foreign investments in production and the development of its production capacities in recent years. The Commission's forecast is favorable for the service sector in Serbia, primarily due to the flourishing IT, business, and tourism sectors.

However, economist Ljubodrag Savic says that the European Commission's forecast for Serbia was quite acceptable - before the events we are now facing.

"The war in Ukraine is becoming exceedingly complicated, especially the situation in Serbia due to the imposition of sanctions on Russia and the demand to sell NIS. This will be a considerable problem for Serbia, which could have political as well as economic consequences. It's not just an oil problem because it will certainly cause some disruptions, but I don't believe it will significantly affect the growth rate. There will be problems with gas because the Ukrainians tried once to shut down the gas. Why are both important? These are the raw material conditions for foreign companies that largely hold that growth in Serbia apart from the component of domestic growth," Savic told Kosovo Online.

He pointed out that the majority of foreign companies came from the EU.

"Unfortunately, the European Union is in great trouble today because this war, the disruption of oil and gas supplies from the Russian Federation, as well as the abandonment of cheap Russian raw materials and the large Russian market, have significantly narrowed the scope of business for EU companies. There is also a problem in Germany, which is one of the few countries that, if you look at it on a quarterly basis, has either a plus 0.1 or a minus 0.1 percent growth. Sometimes the minus is even greater. In any case, the German economy is in recession," the professor notes.

He emphasizes that Germany is very important to Serbia as it is Serbia's most important trading partner.

"The largest amount of exports goes to Germany, the most foreign companies and direct investments came to Serbia from Germany. For achieving the projected growth rate for Serbia, it is very important that Germany and the EU economy function well. They are our most important foreign trade partners. If they do not function well, it is difficult to ensure the projected GDP growth. For the first time in a long time, Serbia has planned a fiscal deficit of three percent," our interlocutor explains.

As he adds, Serbia received a credit rating a few months ago that is exceptionally good for our circumstances.

"We are one of the first countries at this level of development to receive a positive credit rating, which has allowed us to borrow under significantly more favorable conditions. Regarding the refinery situation, we are being pushed to have Russia exit the ownership of the refinery. Just to stick with the scenario that is most favorable for Serbia, if Serbia were to buy 5% of the ownership and become the majority owner, it would cost us an estimated 600 million euros. This means we would exceed that three percent deficit limit, which would be a bad signal for everyone who has given us a credit rating. This can change because there is money to pay for it, but there is another thing. The solution is if Serbia gives up some capital investments. Again, capital investments were one of the important reasons why foreigners come to us," the professor explained.

He assessed that these are the main risks facing Serbia, but that the biggest risk is how the situation in Europe will evolve regarding the war in Ukraine.

"As things stand now, it is heading towards further escalation, and it is clear that nothing can be normal if there is a war on European soil. The war will not just stay in Europe, it looks like it will be much wider. Even if there is no war, the misunderstanding will be greater. Many people expect Trump to resolve things. He is a sovereigntist, a Republican. He will lead a sovereigntist American policy and all policies in the world will be subordinate to this American interest. At the very least, we need to open our eyes wide and be cautious because many traps await us. Look at what's happening in Kosovo, what's happening in the Republic of Srpska. Politics is not separate from economics. These are all challenges that do not depend on us. If we hypothetically ran our own policy, we would catch a good rhythm in a few years and our growth rates would be much higher, but that is not possible," Savic stated.

Regarding the standard of living of citizens in Serbia in 2025, he says that not much will change compared to 2024.

"Salaries will nominally be higher, but not in real terms. When you look at it by categories, the average pensioner does not care how much the price of cars, loans, and similar has increased. What matters to him is the price of utilities and these prices are rising quickly and significantly, important is the price of food, which has been leading in the region for years. There are also the prices of medicines in the free market, so you cannot count on a rise in standards even though pensions are nominally growing quite well. If you look at things that way, few people would be dissatisfied in Serbia, but if you include real indicators with the growth of inflation that devalues it, then it's not as good as it seems at first glance," Savic said.

Asked how important the region is for economic development, Savic emphasizes that it has always been said 'your neighbor is the most important in life' and that is true in the economy as well.

"We are quite divided in the region. The economy is not the region's problem, but rather political relations and unresolved accounts from 100 or 200 years ago. It is completely natural that we first cooperate with the region. We had CEFTA which functioned well, but the Albanian side was the first to make a bad move by banning the import of Serbian goods. They do not understand that this harms Serbian citizens, but also their citizens. Everything that is happening is schizophrenic politics in the Balkans and because of that, we will have a lot of problems. However, economic power forced the Croats to support us when it comes to the oil crisis because of their interests. If we could somehow highlight economic cooperation, I believe political misunderstandings would be easier to resolve. But, when you have the Kosovo side, everything goes over the backs of the Serbs. The state is powerless, Europe does not have such interest, but other goals. Serbs living in Kosovo will have the hardest time, it will be hard for us, but twice as hard for them," Savic concluded.

In addition to Serbia, the European Commission has estimated that North Macedonia's GDP growth for 2025 will be 3.5%.

However, Branko Azeski, President of the Chamber of Commerce of North Macedonia, says that the economic growth of this country is highly questionable and warns that there are numerous factors complicating accurate economic forecasting.

"The risks are too high for us to determine the growth rate accurately, as Europe has not faced the kind of problems it is currently facing, including the expansion of the war in Ukraine, which looms over us all like an umbrella and creates enormous uncertainty," Azeski emphasizes to Kosovo Online.

He pointed out the inflationary pressures that have persisted for ten years and have been further exacerbated by the crises that have hit the region. Although optimistic that Macedonia can achieve economic growth, he notes that the estimated figures are highly questionable.

"We will do everything in the state to reach a consensus on this issue and to increase investment activity and the inflow of fresh money into local businesses through budget structuring, to anticipate the process of decentralization which is currently stalled, which could lead to an increase in investment activity and exports," said Azeski.

He also commented on the situation where last year saw both a rise in wages and inflation. According to him, this situation requires careful balancing of budget funds and management skills by the Ministry of Finance, the National Bank, and the Government.

Speaking about the purchasing power of citizens, he pointed to the "incredible rise in food prices," which seriously affects both entrepreneurs and the standard of living of citizens.

"The general conclusion is that we have an incredible rise in food prices, which borders on unreasonableness in market economy conditions. How will all this reflect? It will negatively impact both businesses and the standard of living of citizens," he said.

The President of the Chamber of Commerce of North Macedonia highlighted the importance of regional cooperation for the economic progress of the Balkans.

"There is no alternative, we have now understood that. If we do not get the region back on its feet and have serious trade, we are finished. Our region consists mainly of small countries that achieve modest results. Those who should be the driving force, the locomotive of that development, are in serious trouble at any given time, and because of that, we cannot progress," said Azeski.

He also criticized the political tensions which, he says, dominate the region and hinder development.

"We need to focus on regional development and create a driving force from the most powerful economy in the Balkans that can lead, and we currently do not have that. We are still arguing among ourselves. Everything must be devoted to the implementation, or realization of everything that has been agreed upon, because without that, there is no alternative," Azeski concluded.

Economic analyst from Tirana, Zef Preci, also notes that the economy in the region is closely linked to international events. He expects Albania to continue its economic growth trend in 2025 and make progress compared to the previous year.

"Regarding events abroad, there is hope that reaching a peace agreement in Ukraine could help stabilize the raw materials market, primarily energy sources, but also grains and other products. The Albanian economy is strongly influenced by international events, as it is an open economy," he told Kosovo Online.

He also expects that the European Union will "normalize economically," which could positively impact the Albanian diaspora.

"And this will reflect on their financial contribution to our financial economy, i.e., remittances, in the money that emigration brings," Preci said.

Zef Preci notes that economic growth in Albania is difficult to predict accurately due to the high degree of informality in the economy and the penetration of informal and criminally derived funds.

"We usually rely on data provided by Albanian institutions such as the Albanian Institute of Statistics (INSTAT) and the Central Bank of Albania, which are certified by international financial institutions after a certain period of time. Therefore, after a year or two, we can have data on this year's economic growth," Preci adds.

Regarding internal factors, Preci points out that the agriculture and tourism sectors have the greatest potential for growth.

"At the same time, I think there will be some kind of gradual slowdown in the construction sector, following the impact of a large amount of informal and criminal money in recent years. The number of permits issued for the construction of tourist resorts on the coast inevitably leads to the continuation of 'pumping' money into this sector," Preci added.

In that sense, he emphasizes, forecasts suggest that economic growth will be between four and 4.5 percent.

"These estimates are given from time to time by international financial institutions. They convey appropriate messages to the business community, the government for budget assessment, and the banking system for evaluating borrowing risks. The fact that we have seen a reduction in interest rates is positive and presents an opportunity for lending to take on a larger role, as it is currently far from the potential and capabilities that our economy has to absorb money," concluded Preci.

Unlike Albania, in Kosovo, the construction and banking sectors are currently the most developed, while manufacturing remains the most vulnerable sector, warns Agim Shahini, President of the Business Alliance of Kosovo.

"In Kosovo, we have several sectors that are already advancing. The largest investments and working capital are in the construction sector. Then come the financial sector and banks, which are already quite developed, followed by services and trade. However, manufacturing remains the weakest sector in Kosovo," Shahini told Kosovo Online.

Speaking about the standard of living of citizens, Shahini pointed to World Bank data, according to which Kosovo is the poorest in Europe, just behind Ukraine.

"This concerns us, and it should concern the state and government," he said.

He assessed that the last four years have not been successful and that the government did not have a strategy.

"We need to create a strategy for development, a strategy against poverty, and a strategy for attracting foreign investments. Last year, we had imports worth more than six billion euros, which is the largest growth in the export of cash to foreign states. This means that Kosovo did not have a strategy for the economy and domestic production," Shahini stated emphatically.

Shahini has emphasized the importance of regional cooperation but also pointed out that Kosovo has suffered significant losses due to European Union measures.

"Regional cooperation is important, especially with CEFTA member countries that are in the vicinity. However, Kosovo still faces economic sanctions from the EU, which have been in place for two years, and the losses are multifaceted. Economically and financially, they exceed one billion euros. Politically, Kosovo has not been admitted to any international institutions, nor has there been any new recognitions. In diplomacy, we also face many obstacles from major powers, and Kosovo cannot integrate with the economic sanctions we already have," concluded Shahini.