The Social Impact of the Global Economic Crisis in the Western Balkans with a focus on the Republic of Macedonia

This paper studies the social impact of the global economic crisis on the countries of the Western Balkans, with a focus on the Republic of Macedonia. Although almost all countries of the region have been severely hit by the economic crisis in 2009 some, such as Macedonia, that were less integrated into the global economy were apparently less affected initially. The paper sets out the broad impact of the crisis on the region’s economic growth, and identifies the transmission mechanisms of the crisis, through contractions of export demand, falling remittance flows, bank credit, and sharply reduced flows of foreign direct investment. The international and domestic policy responses to the crisis are outlined. Finally the social impact of the crisis is examined in terms of the effects on unemployment and pension provision. The results of a household survey carried out in Macedonia in summer 2009 are used to identify the effects of the crisis on socio-economic conditions, poverty, income inequality, and ethnic tensions. The analysis shows that the social effects of the crisis have been far worse than implied by the official macroeconomic data. The paper concludes that the social impact of the global crisis in the region has been severe, and that its impact may worsen in the coming months and years with potentially serious consequences for regional stability. In the case of Macedonia, speedy progress with Euro-Atlantic integration may mitigate these risks.