The Central Bank of Bosnia and Herzegovina (CBBH) has raised its projections for Bosnia’s economic growth in 2021 and 2022 compared to the projections of May 2021, which were prepared on the basis of quarterly data from the end of 2020.
The CBBH press release says economic activity growth in 2021 is expected to reach 5.8 percent, 2.4 percentage points higher than the projection six months ago. The 2022 economic growth projection has been revised upwards by 50 basis points from the first set of 2021 projections to 3.9%.
Explaining the reasons for the sharp revision of the 2021 economic activity projection, the CBBH noted that since May, the decline in economic activity in 2020 has been revised downwards from -4.3%, to -3, 2% or 1.03 billion BAM. At the same time, the recovery in 2021 was supported by robust foreign demand throughout 2021, reflected by large upward revisions to economic activity in the EU. The growth of economic activity in 2021 was also strongly influenced by a stronger than expected recovery in tourism revenues.
The central bank predicts that Bosnia’s real GDP level in 2019 could be exceeded by the end of 2021 by BAM 876 million (2.53%).
The growth in personal spending in 2021 is based on positive indicators from the labor market, as well as the expected decline in the number of unemployed, modest growth in employment and the average take-home wage, and increased remittances from from foreign countries.
Compared to the previous series of projections, the recovery in personal spending until the end of 2022 has been revised upwards, mainly due to the significant revision of official 2019 data in the second half of 2021. According to official data, personal spending continued to increase. strongly in the first half of 2021. The projection of personal expenditure growth in 2022 has been strongly influenced by the base effect and expected trends related to the labor market, loans and remittances from foreign countries. The central bank added: “We remain fairly conservative when it comes to trends in the unemployment rate, but also the speed at which Bosnian workers could be employed in the EU in the short term.
In 2022, the CBBH expects moderate growth in real economic activity. The projection from May 2021 has been revised upwards mainly due to the higher expected investment activity, based on the high economic growth rate in 2021, but also the removal of barriers to a more inflow. strong foreign investors, said the CBBH.
With the growth of economic activity, the CBBH expects the foreign trade deficit to widen again in 2022. However, it expects it to be slower compared to the previous period. pandemic, due to slightly faster growth in exports compared to growth in imports. .
Higher inflation growth is expected over the projection period. The inflationary shock predicted earlier this year has materialized, the central bank said. “While it seems that the projected inflation rate of 1.7% in 2021 is relatively low, given the strong growth in energy and food prices on international markets, but also the price of international freight transport, it should be borne in mind that deflation has continued. in Bosnia in the first half of the year, ”he added.
“To a large extent, due to these deflationary pressures in the first half of 2021, we expect inflationary pressures to strengthen in 2022. The inflation projections are consistent with the projected trend of economic activity and prices energy futures. However, despite the prevailing view that inflationary shocks in Europe are transient, there are still risks of stronger inflationary shocks in Bosnia, especially in the medium term. The risks are linked in particular to the price of electricity in the country, and to the effects of the normalization of the monetary policy of the European Central Bank ”, concluded the CBBH.