Macroeconomic and fiscal indicators of Kosovo, 2023

Kosovo’s economy has continued to perform well, despite the challenging external environment. Real GDP growth slowed to 3.3 percent in 2023, amid low growth in major trading partners and diaspora countries. Domestic demand was the main driver of the economy. External demand was moderate and will remain weak in 2024.[1]

Inflation has fallen significantly as a result of lower raw material prices, reaching 2.2 percent year-on-year in February. The external current account narrowed to 7.7 percent of GDP in 2023, due to lower energy and food prices. Growth is expected to pick up to 3.8 percent in 2024, driven by strong private consumption and faster investment growth.

The banking system remains sound[2].

Foreign direct investment remained solid and expanded further by 11.4% in 2023, although there was a shift in the country’s main partners. There is a noticeable increase in investments from Austria, Turkey and Slovenia. The sectors that absorbed most of this investment were energy and financial and insurance activities.

Signals from the labor market look positive: employment grew by 3.5% through October 2023, year-on-year. Most jobs were created in the public sector and went to people in the 25-34 age group. From January 2024, Kosovo citizens can finally travel visa-free to the Schengen area, where youth immigration may accelerate, as the unemployment rate for this group rose to 20% in 2022.

The government is pursuing an expansionary fiscal policy targeting the most vulnerable groups. Public investments will continue to grow. Consequently, the budget deficit is expected to reach 1.5% in 2024.

In the medium term, we expect economic growth to accelerate above 3.5%, again supported by domestic demand.

Progress in the dialogue with Serbia and the EU accession process can increase confidence, FDI, tourism, donor financial support and growth. In addition to a strong history of prudent policies, Kosovo has significant buffers to cushion negative shocks, including low public debt.

[1] https://wiiw.ac.at/kosovo-overview-ce-23.html

[2] https://www.imf.org/en/News/Articles/2024/04/04/pr-24105-kosovo-agreement-on-the-2nd-reviews-of-the-stand-by-agreement-and-rsf-agreement