Bosnia and Herzegovina outlook: Growth partly impeded by catastrophic floods
|Economic activity slightly improved in 1H24, averaging 2.3% y/y, owing to household consumption boosted by strong real wage growth and solid tourism revenue intake. However, due to widespread floods in early October and subsequent infrastructure damages activity likely slowed again in 4Q24.
Looking ahead, we expect mild growth acceleration over the forecasted period. Tight labor market and steady real wage growth should allow steady household contribution to growth, while the need to repair flood-damaged infrastructure should underpin investment activity figures in 2025. On the external side, export figures looked livelier recently but expected reconstruction of infrastructure is likely to be import heavy, thus keeping overall net export contribution in the red.
Inflation deceleration continued in 2H24, with the most recent figure for October landing at just 0.9% y/y. Moderation of prices is largely broad based. Going forward, our base case is moderate acceleration of prices with average prints around slightly above 2% y/y.
The fiscal situation deteriorated in 2024 due to higher current spending needs following wage and pension hikes. Additionally, the cost for repairing flood damages will create additional unforeseen spending pressures, partly reflected in this year’s budget gap, but mostly in 2025.
Local elections in October saw no major surprises with the biggest parties largely holding their ground. The announcement in March that the EU will open accession negotiations brought only short-lived positive momentum, as challenges remain amid elevated domestic tensions.
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