The Western Balkans will grow by 3.2% this year and 3.3% in 2027, outpacing eastern EU member states and the euro area, the Vienna Institute for International Economic Studies (wiiw) forecast on October 21.

The region is "one of the real bright spots" in Central, East and Southeast Europe and wiiw has revised its outlook upwards despite high political challenges, Richard Grieveson, the institute's deputy director and lead author of the forecast, told a webinar presenting the report. In its summer forecast the institute had put Western Balkan growth at 2.5% for 2026.

The upgrade sets the Western Balkans apart in a forecast otherwise dominated by downgrades. Higher energy prices since the start of the Iran war have pushed inflation back up in 20 of the 23 economies wiiw covers, central banks have stopped cutting rates, and growth forecasts for much of the region have been trimmed since the summer. The eastern EU members are forecast to grow by 2.2% this year and 2.5% in 2027, while the euro area manages 0.9% and 1%.

Kosovo is the region's fastest grower, at a forecast 4% this year, followed by Albania at 3.8%. North Macedonia and Serbia are both expected to expand by 3.3% and Montenegro by 3.1%, while Bosnia & Herzegovina lags at 2.2%. Inflation in the region was revised down, coming in better than wiiw had expected.

Grieveson sorts the region's economies into three groups. The outperformers are the Western Balkans and Turkey, together with Poland and Kazakhstan. A middle group of mostly EU members is growing at a solid if unspectacular 2-3%, while Russia, Belarus, Romania and Slovakia make up the laggards. Half of the region's economies will grow faster this year than their average since the global financial crisis, and those are concentrated in Southeast Europe, which Grieveson called the most successful part of the region overall.

Consumption remains the main driver across the Western Balkans, but investment is playing a growing role across the wider region, supported by EU funds, energy and transport infrastructure and corporate spending on automation and digitalisation, he said. The World Bank made a similar call earlier this month, raising its 2026 forecasts for Montenegro and North Macedonia while trimming Kosovo's.

A genuine EU membership perspective would lift growth further. The Western Balkans are doing well anyway, Grieveson said, but accession would make them grow faster still, and the boost would begin as soon as enlargement became credible. His impression is that the big EU member states have decided that enlargement must happen for geopolitical reasons. Albania was named among the accession frontrunners by European Commission President Ursula von der Leyen on October 1, while Brussels has warned that Bosnia risks losing EU funds unless its leaders push through reforms after the October election.

Serbia goes to the polls on October 25, when former president Aleksandar Vucic will seek to become prime minister. The institute forecasts Serbian growth of 3.3% this year and 3.4% in 2027, but a separate analysis by wiiw economist Branimir Jovanovic found that Serbia's economy grew more slowly under Vucic's Serbian Progressive Party (SNS), averaging 2.4% a year in 2012-2025 against 4.2% in 2001-2011, and lagged most of its regional peers. Foreign direct investment, the centrepiece of the government's strategy, fell to 3.9% of GDP in 2025.

On the downside, unemployment remains above 10% in Bosnia, Kosovo and North Macedonia, and Montenegro's current account deficit is forecast at 20.5% of GDP this year. Geopolitical risks also weigh on the outlook, Grieveson warned, from Russia's hybrid war against Europe to a new cycle of elections in which populist parties could challenge the status quo in several big EU states.