Page 49 - SE Outlook Regions 2023

In October 2022, the World Bank cut its economic growth projection for Kosovo for
2023 by 0.6 pp to 3.7%, while the economy is expected to expand by 4.2% in 2024.

The World Bank said that inflationary pressures interrupted Kosovo’s recovery path.
GDP is expected to decelerate to 3.1% in 2022 due to slowdown in investments and
private consumption. Exports continued to boost growth. In the current context there
is a need to support the vulnerable to mitigate the impact of surging energy and food
prices. In the medium term accelerated implementation of structural reforms in
energy, education, social protection and health care is critical to enhance sustainable
growth.

2.5.2 External environment

With slowing remittances, the current account is expected to deteriorate until 2023.In
the medium term, non-debt crediting foreign direct investment (FDI) and external
lending will be the key sources of financing for the current account.

Against a significant increase in prices, merchandise imports, which represented
53.4% of GDP in 2021, increased nominally by 26% until July 2022, further
exacerbating Kosovo’s structurally high trade deficits, according to the World Bank.

The trade gap started to increase rapidly from February 2021. Kosovo’s trade gap
widened by 22% y/y to €3.87bn in the first ten months of 2022.

The country’s current account deficit is projected at 10.9% of GDP in 2022 and 8.7%
of GDP in 2023 following a gap of 8.8% of GDP in 2021, according to the
International Monetary Fund (IMF).

2.5.3 Inflation and monetary policy

Kosovo entered an inflationary cycle in February 2021 and the annual inflation rate
reached double digits in March 2022. The annual inflation in Kosovo showed signs of

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