Page 42 - SE Outlook Regions 2022

direct investment, driven by higher dividend repatriation, is expected to
drop from 4.1 to 3.8% of GDP.

2.5.2 Inflation and monetary policy

Kosovo’s inflation is expected to increase to about 5% year on year by
end-2021, on higher energy and food prices. Inflation pressures are
expected to remain persistent through mid-2022 and gradually ease
thereafter. According to the IMF, average inflation is seen speeding up
to 3.6% in 2022 from 3.1% in 2021.

Kurti announced that the government is preparing a package of
measures that will help citizens to more easily overcome the financial
difficulties created by price increases.

The World Bank said that inflationary pressures heightened significantly
during 2021, in line with global trends, creating challenges for private
investment. Consumer price inflation, driven primarily by higher import
prices, is expected to reach an annual average of close to 3.5% in 2021
and to slow down to 1.8% in 2022.

2.5.4 Industrial production

Production in Kosovo’s manufacturing industry rose by an annual 3.3%
in the third quarter of 2021, slowing significantly from a 43.6% increase
in the previous quarter, according to the latest statistics office data. This
reflects the low base in 2Q20, due to the spring 2020 lockdown.

The output in the mining sector soared 111.5% y/y in the third quarter of
2021, following a 12.7% y/y increase in the previous three months.

The mining sector is an important contributor to Kosovo's economy. The
country has reserves of lignite and metal and mineral deposits.

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