Economic Convergence Scoreboard for the Western Balkans 2025

Executive summary

Economic convergence with the European Union (EU) remains a strategic necessity for the six Western Balkan economies. Beyond improving living standards, a more competitive and resilient Western Balkans is essential for fostering trade, attracting investment and deepening integration into European markets.

Over the past two decades, the region has made significant progress in sustaining economic growth. On average, growth levels in the Western Balkans have consistently outpaced those of the EU, helping to bring the region’s GDP per capita closer to the EU. Since 2003, GDP per capita – adjusted for purchasing power parity (PPP) – in the Western Balkans grew by approximately 120%, rising from USD 9 725 in 2003 to USD 21 305 in 2023.

Despite this positive convergence trend, the Western Balkan economies have made only modest headway in narrowing the gap with their EU counterparts. In 2023, the region’s GDP per capita at PPP remained just below two-fifths (40%) of the EU average – an improvement of approximately 13 percentage points since 2003, when it stood at 27%.

The Economic Convergence Scoreboard for the Western Balkans 2025 identifies the key bottlenecks holding back faster and more sustainable growth in the region. It offers a comparative overview of the region’s performance in relation to the EU, analysing 35 indicators grouped into five policy clusters: 1) infrastructure and connectivity; 2) skills; 3) business environment; 4) digital transformation; and 5) greening.

Infrastructure and Connectivity

The greatest convergence of the Western Balkans towards the EU has been observed in the Infrastructure and Connectivity cluster, although overall performance in this area remains weak.

 

Transport networks, particularly rail infrastructure, continue to lag behind those of the EU, increasing costs for businesses and reducing trade efficiency. While investments in major transport corridors have accelerated, rural connectivity remains limited, restricting access to markets and economic opportunities. The Western Balkans Investment Framework (WBIF) has played an instrumental role in financing key infrastructure projects, but further efforts are needed to streamline regulatory approvals and improve project implementation.

In terms of energy infrastructure, ageing coal-based power plants contribute to inefficiencies, as reflected in high levels of power losses. Even then, substantial fossil fuel subsidies have kept electricity prices relatively low across much of the region. However, the prospect of EU accession is expected to place increasing pressure on the long-term sustainability of these low electricity costs. Cross-border energy connectivity remains underdeveloped, limiting the region’s integration into regional energy markets and reducing access to enhanced energy security.

Digital infrastructure has benefited from substantial investments, significantly improving digital connectivity, with mobile penetration rates now approaching EU levels. Nonetheless, gaps remain in the development of high-speed networks, as the region’s average broadband speed is less than half that of the EU. High broadband costs, limited competition in the telecommunications sector and coverage gaps in rural areas continue to impede further progress in digital connectivity.

Skills

The Skills cluster exhibits the weakest performance of the region, despite gradual convergence with the EU.

 

Labour market conditions in the Western Balkans have improved, with notable progress in increasing employment rates and enhancing the educational attainment of the workforce. However, there have been no visible productivity improvements, with labour productivity in the region remaining at only 40% of the EU average.

Youth unemployment and inactivity remain high across the region. Education systems often face challenges in equipping youth with foundational skills, evidenced by low scores in the Programme for International Student Assessment (PISA), and in aligning curricula with labour market needs. VET students struggle to acquire in-demand skills due to outdated curricula and limited practical training, revealing weak links between education providers and industry, which constrains graduates’ abilities to meet current and emerging labour market needs.

Policy efforts to expand reskilling and upskilling opportunities have gained traction. Nevertheless, the growth in available programmes has not been accompanied by an increase in participation rates. This is particularly significant given the rapidly evolving skills landscape, driven by the green and digital transitions, which risks leaving the workforce unprepared to support structural transformation. Low investment in research and development continues to limit innovation and the development of new competencies needed for future-proofing economies.

Business Environment

While the business environment represents the region’s strongest area of performance, overall convergence with the EU has shown no visible progress over the past decade.

 

Considerable improvements have been made in banking sector stability and the promotion of investment. Non-performing loans (NPLs) have fallen on average from over 13% to 4.2% over the last decade. This trend reflects increased the resilience of the financial sector. The region has also experienced a steady rise in foreign direct investment (FDI), with net inflows averaging 6.4% of GDP in 2020-23, more than four times the EU average.

Despite these improvements, access to affordable financing remains a major bottleneck, particularly for small and medium-sized enterprises (SMEs). High borrowing costs, stringent collateral requirements and limited availability of alternative financing mechanisms continue to constrain the ability of businesses to expand and innovate. This also holds back private investment across the region. Although private investment levels are comparable to those in the EU, they remain insufficient to accelerate economic convergence.

Corruption and informality also continue to undermine fair competition and deter potential investors. Perceptions of corruption have worsened in some economies, partly due to weak political commitment and enforcement challenges. High levels of informal employment – often linked to low productivity levels – are further exacerbated by high labour taxation and underdeveloped social security systems.

Trade flows in the Western Balkans remain lower on average than those of EU member states, constrained by limited industrial bases and the persistence of non-tariff barriers. Supported by business demographics, SMEs tend to export comparatively more than their EU counterparts. However, their overall productivity and capacity to scale up export volumes have shown little improvement over time.

Digital Transformation

Digital transformation ranks as the second strongest performing area for the Western Balkans, reflecting relatively strong connectivity for citizens and businesses.

 

The region’s population enjoys strong digital connectivity, with internet usage levels exceeding 95% of the EU average. However, digital engagement – such as online transactions and the use of digital public services – remains limited. Fewer than 30% of individuals use the internet to interact with public authorities. This reflects both the limited availability and awareness of e-government services and a lack of digital skills across the population, indicating a broader unpreparedness to fully capitalise on the opportunities presented by digitalisation.

The region’s businesses struggle to effectively leverage digital technologies. They face challenges in adopting digital solutions, with low e-commerce presence and limited access to emerging technologies, such as artificial intelligence. Cybersecurity concerns and regulatory gaps further restrict the potential for digital growth. Notably, consumer trust in online transactions is low, with 30% of citizens reporting concerns about data security.

The information and communication technology (ICT) sector has emerged as a key driver of economic growth. ICT exports now stand at nearly 90% of the EU average, thanks to a combination of targeted incentives to attract investment, improved infrastructure for start-ups and a skilled youth workforce.

Greening

The Greening cluster recorded the highest proportion of worsening outcomes across all policy areas, with a significant divergence from the EU. This widening gap stems from both relative lags, where the region’s progress was outpaced by that of the EU, and absolute lag, where the region’s performance either stagnated or deteriorated.

 

The Western Balkans have started to implement policies aimed at a greener economy, yet progress remains slow – particularly in reducing carbon emissions. The region continues to rely heavily on fossil fuels, with coal still accounting for a substantial portion of electricity generation. While investments in renewable energy have increased, they remain, in most economies, insufficient to enable a large-scale transition towards decarbonisation. Moreover, the region's renewable energy mix remains undiversified, with a heavy reliance on hydropower, underscoring the need for greater adoption of wind and solar power to mitigate environmental concerns and climate change risks.

Concerns over inefficient resource use are also growing. In addition to the low efficiency of ageing coal plants, inefficient energy use is contributing to high energy intensity across the region. On average, the Western Balkans’ energy productivity is less than half that of the EU, indicating that much more energy is used to generate the same economic output. Water use shows similar constraints, with productivity just one-third of the EU average due to outdated infrastructure and persistent pollution. Waste generated per economic output exceeds EU levels, while treatment options remain limited. Notably, the share of municipal waste destined for landfill is more than 3.5 times that of the EU.