Page 48 - Central & Southeast Outlook 2020

face of strong competition from rival Eastern Mediterranean destinations and growing labour shortages.
Raiffeisen analysts describe a “seemingly very favourable macroeconomic picture and good prospects in the short term”, but like the EBRD warn of longer-term constraints. The positive short-term picture does “not mean that fundamentals for a stronger and more resilient growth and development have changed”.
“The labour market remains characterized by low employment and activity rates and there is a relatively high household indebtedness and poor business environment burdened with numerous barriers stuck in the highly bureaucratized system. Therefore, competitiveness has remained stagnant over the years and exports are based on tourism as well as labour and resource intensive production,” warn Raiffisen analysts.
Meanwhile, analysts note the low inflation in Croatia that is also helping to support private consumption; headline inflation declined compared to 2018 in the first half of 2019, which was mainly due to the reduction in the VAT rate on certain unprocessed foods. According to the IMF, consumer prices are expected to rise 1.2% in 2019, after moving up 0.9% in 2018. They will rise by 1.3% in 2020. The European Commission’s forecast is for inflation to pick up in 2020 to 1.3% and rise further to 1.5% in 2021.
1.5 ​Macro - Kosovo
Kosovo is projected to post GDP growth of 4% each in 2019 and 2020, up from 3.8% in 2018,​according to the European Bank for Reconstruction and Development (EBRD), with domestic demand continuing to be the main growth driver. The projection is slightly lower than that of the International Monetary Fund (IMF), which foresees Kosovo’s economy to expand by 4.2% in 2019.
For 2020 and 2021, the World Bank foresees growth of 4.2% and 4.1%, respectively for Kosovo.
However, there are a number of downside risks to the outlook, as identified by international financial institutions (IFIs). These concern domestic and regional political dynamics, possible delays in investment plans following the October 6 snap general elections, a higher than projected cost of the new law on public salaries, and the stability of international metals prices. The World Bank also identifies lower than projected IFI-financed public investment and slower growth in the EU.
Inflation is expected to slow down to 1.8% in 2020 down from a projected 2.8% in 2019.
48​ CESE Outlook 2020​ ​ ​www.intellinews.com