During covid-19 pandemic, over 16,000 people tested positive in South East Europe. However, market analysis for South East Europe shows a slowdown in the SEE economies. Those heavily rely on trade with investments from European countries, especially Germany and Italy. Unemployment in the SEE economies may rise again and labour market conditions may deteriorate further, as a significant share of the workforce lives abroad (between 20-25% of the population).
Moreover, within the domestic markets SMEs, manufacturing and tourism sectors will be among the most affected. Some SEE governments have already introduced stimulus packages. As an example, the government in Croatia raised support from HRK 3 250 per worker to HRK 4 000.
All SEE economies have closed their borders crossings to the movement of people while allowing the flow of goods and medical equipment. Due to the lockdown measures, educational systems in the SEE region have started conducting classes remotely. The lockdown also affected cafes, restaurants, and retail store, as well as large-scale cultural events. These measures have triggered a rapid expansion of e-commerce services in the SEE. That triggered many firms to seek new ways to conduct business during the crisis.
Furthermore, a covid-19 pandemic is taking a heavy toll on the economy which will affect South East Eruope. In this market analysis, South East Europe is leading to much lower economic growth compared to other European countries.
Economic impact: Market analysis South East Europe
First and far most affected due to the covid-19 pandemic will be domestic supply. Although macroeconomic policies can aid the recovery of demand, they can not completely offset the economic consequences.
Summer season for tourism is not looking good either. Albania and Montenegro tourism revenues exceed 20% of GDP.
Third, exports across the region will fall due to depressed demand, as well as disruptions in value chains. Moreover, the manufacturing sectors contribute most to their economies in terms of value-added and employment.
The contributions of foreign direct investment (FDI) to the Western Balkan economies were relatively sizeable over the last years. With FDI investments over the past years, we could see more economic growth and job creation. See the chart below-showing investments for South East Europe region. Romania shows growth in FDI investments with a net flow of over 7 billion US$ in 2018.
The economic slowdown will also come at a bad time for Albania and Croatia, as both economies have been recently hit by earthquakes. No argue that this will add an additional burden to already stretched budgets to counter the coronavirus outbreak.
Unemployment in SEE region
In South East Europe there is a constant outflow of human capital. According to available data from the United Nations, in 2019 there were almost 4.6 million people living abroad from the five Western Balkan economies. In particular, young, skilled workers seek job opportunities outside the region. Also, many health professionals leave for Western EU countries and Switzerland.
Moreover, in the context of current covid-19 crisis, two thirds of people have no prior experience with teleworking. On average, only about one third of individuals aged 25 to 64 with high formal education have at least once worked from home in 2018.
All Western Balkan economies have taken measures to limit physical interaction, and the workplace was the first focus of those measures. Existing regulations have already been relaxed and new options for teleworking have been introduced.
What to expect for SMEs?
In the Western Balkans, over 99% of all firms make up SMEs, which generate around 65% of total business sector value-added. SME’s account for 73% of total business sector employment according to OECD.
There are only few implications on how covid-19 could impact on financial losses for SMEs. However, we can only assume that the reduced customer demand will lead to cash -flow problems.