Kosovo Economic Outlook
Annual economic growth accelerated in Q1, chiefly on the back of a rebound in gross capital formation. In Q2, activity should have remained healthy. Available data suggests that domestic demand strengthened: Merchandise imports and remittances expanded at a faster pace relative to Q1, while inflation declined throughout the quarter. On the flip side, foreign tourist arrivals expanded at a softer rate and merchandise exports swung to contraction in Q2, while FDI inflows shrank in April–May. Meanwhile, in mid-August, the IMF stated that Western sanctions imposed in late June due to tensions in the north of the country could lead to a reduction in FDI, denting growth prospects. Notably, several EU-funded infrastructure projects have been canceled in recent weeks.
Inflation fell to 2.4% in July from June’s 2.8%, marking an over-two-year low. Inflation is set to average lower this year relative to 2022, curbed by lower commodity prices, cooling private demand and a strong base effect. Commodity prices and the strength of the euro are factors to watch.