(Updates with World Bank’s lead economist comments in third, fifth, sixth paragraphs.)
Nov. 15 (Bloomberg) -- Western Balkan economies will grow an average 2.1 percent in 2012, four times the pace of the European Union, should the euro region avoid a “disorderly default,” the World Bank said.
Next year’s growth for Albania, Bosnia and Herzegovina, Kosovo, the Republic of Macedonia, Montenegro and Serbia, a region called the SEE6, would compare with 0.5 percent for the 27-nation EU, the World Bank said in a report today. This year’s SEE6 expansion is seen at 2.5 percent, compared with an assumption of 1.6 percent for the EU, the Washington-based institution said.
“We took the position in the report and the projections that we made for growth assuming the authorities in Europe will be able to solve the current problem without a disorderly default or without the euro zone breaking up,” World Bank lead economist for the Western Balkans Ron Hood said. “We didn’t project any catastrophic scenarios along those lines.”
The region, which includes former Yugoslav republics that lack a date for joining the EU and have the highest unemployment rates in Europe, depends on the world’s largest trading bloc for trade, credit, investment and remittances. Though the euro area’s debt troubles are hindering the Balkans, a deeper integration remains the best future for SEE6, the report said.
“I don’t think all the steam has gone out of the growth model,” Hood said in Belgrade today at a presentation of the report. The future relies on closer ties with the EU, and in the near term the region will continue to suffer from “unprecedented” turbulence in Europe, he said.
The six western Balkan states also need to rebuild their capacity to survive crises by adding to reserves and preparing for further spending cuts, the report said.
Room to Spend
Macedonia is the only country with some room for “an accommodative fiscal policy,” allowing it to boost government spending to support the economy should the crisis worsen. The rest of the region, it warned, should aim for “precautionary” fiscal tightening, with a focus on pensions and wage bills.
The World Bank identified “close to high risk” fiscal deficit levels of between 3 percent and 5 percent of gross domestic product in Montenegro and Serbia, the largest of the six.
Kosovo, a breakaway Serb province, Montenegro and to some extent Albania have high-risk current-account gaps of more than 6 percent of GDP.
Serbia, Albania and Montenegro have public and external debt levels “that are close to the high-risk reference rate” of 60 percent of GDP, the World Bank said. In addition, Bosnia Serbia are “particularly vulnerable due to a high dependence on foreign funding of banks,” it said.
Along with a high level of non-performing loan rates in the Western Balkans, higher bank capital requirements in the EU may prompt parent banks to tap their subsidiaries for liquidity or dividends, “potentially” causing “another credit crunch in the region,” according to the World Bank.
Exposure to banks from troubled EU members Greece and Italy exceeded the 10 eastern EU members’ exposure. The region’s exposure to Greece was 13.2 percent on average, compared with 3.5 percent in the EU’s east, while its exposure to Italy was 15.2 percent, compared with 13 percent across eastern EU members, the World Bank said.
--Editors: Douglas Lytle, James M. Gomez
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