Recent Economic Developments
In Q1 2024, real GDP growth rose 2.7%, reversing the sharp slowdown in 2023. The rise in output growth was largely due to a recovery in private consumption, fueled by an increase in minimum wages and a tightening labor market. Stronger retail sales in early 2024 suggest robust private consumption. Inflation reached 1.8% in July 2024 YoY, compared to 4.0% the year before, marking a drop in transport and a slowdown in utility prices. As a result, inflation from January to July 2024 decelerated to 1.9% from 12.2% the year before.
The labor market showed mixed signals. The employment rate rose to 41.9% in Q1 2024, while unemployment increased to 13.5%, a 0.3% age point rise. Economic vulnerability remains high—40% of the population reports being unable to save, running into debt, or struggling to cover basic expenses for more than one month after losing their main income source.
Higher government spending and smaller revenues contributed to a fiscal deficit of 0.9% of GDP in 2023, following a surplus of 0.5% the previous year. The deficit was driven by increased subsidies, social benefits, and transfers. Public debt remains low at 36% of GDP, while the current account deficit improved to 2.8% in 2023, mainly financed by foreign direct investment and loans.
Economic Outlook
An improvement in the EU economic landscape, along with higher private consumption and construction-driven investment, is set to raise real GDP growth in BiH to 2.8% in 2024 and 3.2% in 2025. Inflation is expected to decelerate to 0.5% by 2026 barring further external shocks. By 2026, real output growth is projected to rise to 3.9%, driven by strengthened exports and private consumption from improved EU economic conditions and tighter labor markets in Bosnia and Herzegovina (BiH). The current account deficit is expected to widen to 3.6% of GDP due to higher imports.
In late 2024, policymakers focused on municipal elections, limiting space for economic reforms. Structural challenges hinder stronger output growth, including the large state-owned enterprise sector, population aging, outmigration, and low economic activity rates (around 48%, with women’s participation at 37%).
Sharp increases in minimum wages in 2023 and 2024 may impact external competitiveness, which could also be affected by the EU’s Carbon Border Adjustment Mechanism, given BiH’s reliance on coal-fired thermal power. Additionally, a lack of digitalization and unified registries hampers regulatory compliance and business operations. Geopolitical risks pose a threat of worsening domestic political frictions, undermining the push for structural reforms.
Last Updated: Oct 24, 2024
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Publish date : 2024-10-23 17:00:00
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The post Bosnia and Herzegovina Overview: Development news, research, data first appeared on Love Europe.
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Publish date : 2024-10-26 00:26:09
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