Bosnia-Herz. Economic Forecast

Year-on-year growth softened in Q1 amid weaker private spending, investment and exports. In Q2, growth likely decelerated further. Industrial output declined at a sharper rate relative to Q1. Moreover, both merchandise exports and imports swung into contraction in the quarter, pointing to a subdued external environment and softer domestic demand, respectively. That said, inflation fell throughout Q2, supporting private spending, as signaled by sturdier retail sales growth in the period. Shifting to the current quarter, early data paints a brighter picture. In July, industrial output rebounded after five consecutive months of contraction, while exports shrank at a softer pace than in Q2. In other news, in early August, S&P upgraded the country’s rating to ‘B+’ from ‘B’ with a stable outlook, citing economic resilience and a robust fiscal position.

Inflation declined to 4.0% in July from June’s 4.9%. The fall was chiefly driven by smaller price increases for food and non-alcoholic beverages, as well as for housing and utilities. In 2023, inflation will average roughly half of last year’s figure thanks to a high base effect and lower commodity prices. However, it will remain elevated due to protracted pass-through effects.