GDP growth records fastest expansion since Q4 2021 in the first quarter

Economic growth sped up in the first quarter, with GDP expanding 4.7% on an annual basis (Q4 2023: +3.8% yoy). Q1's reading marked an over two-year high and was marginally above the 4.6% flash estimate. On a seasonally adjusted quarter-on-quarter basis, economic growth slowed to 0.8% in Q1, compared to the previous quarter's 1.0% expansion. Q1's reading marked the softest expansion since Q1 2023.

Private consumption growth accelerated to 4.4% in Q1 compared to 2.5% in Q4, as inflation continued its downtrend. Additionally, fixed investment growth hit an over two-year high of 7.3% in the first quarter, up from the fourth quarter's 5.2%. Less positively, public consumption growth moderated to 3.6% in Q1 (Q4 2023: +5.9% yoy). On the external front, exports of goods and services gained steam, posting a 1.1% expansion in Q1 (Q4 2023: +0.3% yoy). Meanwhile, imports of goods and services growth moderated to 3.2% in Q1 (Q4 2023: +4.2% yoy).

Early data for Q2 points to slightly softer momentum, and our panelists expect growth to decelerate; business surveys suggest that rising headwinds in the construction and industrial sectors are constraining activity. Nonetheless, looking at 2024 as a whole, the economy should expand at a faster pace than in 2023, as lower inflation boosts domestic demand. Tensions with Kosovo remain a key factor to track.

Analysts at Fitch Solutions commented on risks to the outlook: “Risks to our outlook are broadly balanced. Should upward pressures on inflation materialise due to our stronger private consumption outlook, the NBS may be induced to hold its policy rate high for longer than expected, weighing on the already modest gains in investment that we currently expect. On the other hand, net trade may perform better than expected in case of upside surprises to the eurozone growth outlook.”

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