Kosovo Economic Outlook
Annual GDP growth decelerated to 2.0% in Q2 from 3.9% in Q1. The decline was solely driven by weaker export growth, as both merchandise exports and foreign tourist arrivals softened in the period. Domestic demand strengthened across the board, with imports, investment, and private and public spending gaining traction. Available data for Q3 suggests that the economy weakened further. In July–August, merchandise exports contracted at a sharper annual rate relative to Q2’s average. Moreover, remittance inflows lost steam in the same two-month period. In other news, on 24 September, an ethnic Serbian paramilitary group in Kosovo—with links to Belgrade, according to Kosovar authorities—stormed a village in the north of the country, causing four deaths. This bodes poorly for conflict resolution with Serbia and threatens peace and stability in the area.
Inflation came in at 3.2% in August, up from 2.4% in July. Inflation is seen averaging lower this year compared to last, curbed by lower commodity prices, a strong base effect and cooling private demand. A weaker-than-expected euro and commodity price spikes pose upside risks.