In the context of weakening global demand, growth in the Western Balkans decelerated over the course of 2022 and into 2023. Against the background of the lasting effects of shocks from Russia's invasion of Ukraine, sticky inflation, and tighter financial conditions, global demand has been weakening, and this has a divergent impact across the Western Balkans (WB6). On the one hand, the slowdown in global demand contributed to weaker-than expected performance of industrial production in the whole European Union (EU) region and in the WB6. On the other hand, global demand has proved more resilient in services and, for travel, with twice as many people traveling globally during Q1 2023 as in the same period in 2022 (UNWTO). This has particularly benefited Albania, Kosovo, and Montenegro, where services exports have reached new record highs. In contrast, weakening global demand for goods has weighed on Bosnia and Herzegovina (BiH), North Macedonia and Serbia. On the demand side, private consumption remained in general an important growth driver, despite rising price pressures. Reforms are needed to consolidate the recovery toward sustainable growth, while negotiations with the EU hold the potential to bolster prospects in the Western Balkans. As the WB6 agriculture sector is undergoing a major structural transformation, efforts to green agriculture are also important to ensure access to the EU market and for the competitiveness of agriculture, rural development, and food and nutrition security. Most WB6 countries have recently included agriculture greening in their development strategies. Historically, the environmental footprint of the WB6 agriculture sector has been relatively low. But this has been more an unintended outcome of still high rurality and low farming intensity rather than a result of public policy and expenditure choices. Agricultural public expenditures, while substantial in terms of amounts and adequate to influence agricultural production, have not yet prioritized financing of greening and climate-smart agriculture. It is important for the WB6 countries to accelerate greening of their agriculture by learning from the EU's green transition and better utilization of the existing public funds available for agricultural development
