World Bank: The working population in the region will decrease by 17 million

Croatia is expected to achieve economic growth of 3.1 percent this year, 2.9 percent in 2026, and 2.7 percent in 2027. These expectations were published in the World Bank’s report on economic developments in Europe and Central Asia, released today under the title ‘Jobs and Prosperity’.

In addition to placing a special emphasis on jobs, the report concludes that investment in infrastructure, improvement of the business environment, and mobilization of private capital will be crucial for stimulating productivity growth.

Countries in the region should start investing in the foundations that will encourage employment, namely physical and human infrastructure. It is also essential to improve the quality of education, particularly vocational and higher education. There remains untapped potential among women and youth, as these groups are still underrepresented in the labor market.

In recent decades, a significant number of jobs have been created in the region, but slowing growth, lagging productivity, and weak reform momentum are increasing challenges in the labor market. Although employment in the ECA region has increased by 12 percent over the past 15 years, particularly in the service sector, which now accounts for more than half of jobs, the report states that opportunities are largely opening up in the area of relatively low-skilled jobs with limited earning potential.

Unfavorable demographic trends threaten the resilience of the labor market. It is projected that in the coming decades, the working-age population will decrease by 17 million, with the most significant declines recorded in Eastern and Central Europe and the Western Balkans. In Central Asia and Turkey, the share of the working-age population will increase, which will expose their labor markets to different types of pressure. Structural barriers limit the potential of the ECA region, with examples including a plethora of small companies that rarely reach the stage of business expansion, underdeveloped credit and risk financing markets, ineffective education and vocational training systems, limited market competition, and state-owned enterprises that hinder business dynamics and market efficiency.

– Every country can tailor its approach to its own needs to better utilize its resources – human potential, physical infrastructure, institutions, and natural resources – emphasized Ivailo Izvorski, Chief Economist of the World Bank for Europe and Central Asia.

– Increasing employment opportunities can benefit nearly all workers as different sectors require different skills. By focusing on these areas, policymakers will have a real opportunity to overcome labor market challenges and achieve growth – he stated.

Bold reforms are needed

Regional GDP is expected to grow by 2.4 percent in real terms this year, which represents a decline from 3.7 percent in 2024, primarily due to lower growth rates in the Russian Federation. Excluding Russia, which accounts for about 40 percent of regional output, the growth rate this year and next is unlikely to change significantly and will remain at approximately 3.3 percent.

– Developing economies in this region must undertake bold reforms to translate their resilience into stronger productivity growth, output, and job creation that will respond to changes in the demographic structure of the countries in the region and encourage them to leverage their natural advantages – stated Antonella Bassani, Vice President of the World Bank for Europe and Central Asia.

– It is important for countries to strengthen their private sector, improve education, and better connect at the international, regional, and local levels while simultaneously attracting more private capital. The region faces the challenge of increasing employment opportunities and transforming low-skilled jobs into high-quality jobs – she added.

Although GDP growth is modest, the World Bank highlighted the importance of disciplined fiscal policy in the Western Balkans, which has remained disciplined despite slight easing, resulting in a deficit below three percent while public debt continues on a downward trajectory.

A somewhat stronger economic advance in the region is only forecasted by the World Bank for 2027, when it is expected to reach an average level of around 3.6 percent. The best prospects, with GDP growth of four percent, are forecasted for Serbia and Kosovo, where GDP is expected to grow at a rate of 3.9 percent. However, changes in the labor market are a prerequisite for this.

To “unlock” economic growth, the Western Balkans must invest in essential infrastructure that is crucial for job creation. Among the measures are strengthening the education and healthcare systems and increasing labor force participation rates, especially among women.

Investment in transport, environmental, and energy infrastructure will help connect businesses and citizens more quickly and efficiently, enhancing productivity. Additionally, business and private sector growth require strengthening public administration and supporting policies that promote economic growth, alongside creating a predictable regulatory environment.

It is also recommended to encourage competition in key sectors such as energy and transport, reform state-owned enterprises, simplify regulations, and support innovative startups.