WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

Year-on-year growth was 8.4% in Q1 2022. But thereafter the economy lost steam: for the year as a whole, it probably grew by only 3.1%. Highly dependent as Kosovo is on imports, the transmission of high international food and energy prices resulted in an 11% broad-based rise in consumer prices in 2022. The trade balance deteriorated further, although goods exports maintained their positive showing; the level of remittances continued high (close to 15% of GDP); and, against all the odds, foreign direct investment inflows recorded another good year. The expectation is that 2023 will be another difficult year in terms of the country’s energy requirements: the government extended its energy emergency measures for January, although the mild winter has helped keep heating systems (often) switched off. Wage rises following the new law on public-sector salaries – expected to come into force in February – will certainly have positive spill-overs for consumption, but will have an adverse impact on the fiscal deficit. Overall, we expect economic growth to pick up to 3.4% this year – driven mainly by domestic demand – though the downside risks remain elevated.