Bosnia a. H. Watch: GDP growth in Q2 beats all expectations

Real GDP for Q2 2021 released by the Agency for Statistics of B&H (BHAS) surprised extensively to the upside, beating even our optimistic expectations. Real GDP in Q2 brought accelerated economic rebound fueled by two main factors — extremely low base effect from Covid-19 2020 lockdown, but more importantly by widespread demand expansion on EU level pushing export-oriented manufacturing to record high levels, exceeding even 2019 pre-pandemic levels. In addition, private consumption growth in Q2 pointed to an outstanding recovery in terms of private spending and retail sales which also exceeded pre-pandemic volumes driven by on one hand pent-up consumption after the relaxation of Covid-19 measures but supported also by robust growth of real wages in 2021. On the back of robust double-digit growth of key economic drivers in Q2, the released GDP report showed the fastest pace of growth in B&H on record with the economy expanding by 11.6% yoy in real terms Q2 2021, beating our forecast of 8% yoy real GDP growth.

All GDP components positively contributed to Q2 growth, some of them also posting record high growth rates. As expected, the strongest growth and contribution came from exports of goods and services that reported an increase by 51.3% yoy driven mostly by merchandise exports which exceeded value from 2019 by 13% as of August. Although expected, after weak Q1 growth, the rebound of imports of goods in Q2 was more pronounced expanding by 38.8% yoy thus lessening the positive effect of exports skyrocketing growth. However, the most surprisingly strong impulse in Q2 came from household consumption increasing by first double-digit growth rate on record of 13.2% yoy. Pent-up consumer spending in Q2 came after the 3rd wave of Covid-19 was restrained and better managed than previous ones with pent-up demand being “unleashed” owing to positive impulse coming from the labour market (driven by an increase in employment and robust growth of net wages by 3% yoy so far in 2021). In addition, released numbers also pointed to better than expected government consumption that rose by 1.9% yoy led by robust tax revenue growth in the first semester of H1, where VAT tax collection was also above the level of 2019. Gross capital formation rose by 14.9% yoy, slightly below our estimation (18% yoy) as investments rebound is still lagging behind the overall economic recovery momentum and thus being the weakest link in economic rebound in 2021.

In line with the last releases of real GDP data from BHAS for Q1 which was revised upwards to 2.5% yoy (previous 1.5% yoy), followed by double-digit growth in Q2 by 11.6% yoy, as well as due to vigorous momentum of recovery in private sector visible in high-freqency data in Q3 (merchandise exports and imports, retail sales, tax collection), we have revised also to the upside our forecasted GDP growth rates in H2 2021. We expect real GDP in Q3 2021 of 5.5% yoy and 3.5% yoy in Q4 2021, as we do not expect any major lock-downs during 4th wave of Covid-19 or strong headwinds to ongoing economic recovery during second semester. Therefore, we have revised our forecasted GDP growth rate to 5.8% yoy in 2021 (previous 3.8% yoy) and 3.9% yoy in 2022 (from 3.6% yoy).