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Kosovo Watch: Economic momentum spurs 2024 GDP forecast upgrade to 4.7%
Given the remarkable momentum of Kosovo’s economy in the first half of the year and our optimistic outlook for the remainder, we are revising our 2024 forecast upwards. Originally projected at 3.9%, we now anticipate the GDP will grow by 4.7% in 2024. This upward revision is driven by robust household consumption, increased investment activity, and a surge in exports of goods and services, all of which underscore the country’s economic vitality.
Kosovo’s economy shines with resilient Q2 growth amid robust 2024 start
Following an outstanding first quarter in 2024, Kosovo’s economy continued to display exceptional performance in the second quarter. The nation achieved a robust year-over-year growth rate of 4.3% in Q2, showcasing its resilience despite a slight dip from the impressive 5.6% growth recorded in Q1 2024.
Kosovo’s GDP growth recalibrated: Significant revisions unveil economic surge
Although our nowcast predicted nearly 5.0% GDP growth for the second quarter, the difference from the actual figure is due to a significant revision of the prior year’s quarterly data. The Kosovo Agency of Statistics raised the real GDP growth for Q2 2023 from 2.4% to 3.3% yoy, a 0.9 percentage point adjustment. This substantial revision explains the discrepancy in our projected growth rate. Had the initial figure remained, the GDP growth for Q2 2024 would have been 5.2%.
Revisions to preliminary GDP figures are standard among statistical agencies, but Kosovo’s adjustments are particularly noteworthy. The Kosovo Statistical Agency has officially revised the GDP growth for each quarter of 2023, resulting in an annual growth rate adjustment from 3.3% to an official 4.1%. This substantial upward revision has critical implications for economic analysis and forecasting. Additionally, the data for the first two quarters of 2024 are estimates and could also undergo substantial revisions, similar to the 2023 quarterly data. Our earlier forecast of 4.2% proved to be much closer to the finalized 2023 real GDP growth rate, with high-frequency data confirming the accuracy of our projection.
Real GDP growth rate revisions
Kosovo’s Q2 economic uplift: Industry leads with stellar 8.3% growth, sectoral gains spread across the board
Analyzing sectoral performance in Q2 2024, all segments of Kosovo’s economy reported growth, although at varying rates. The industrial sector led with an impressive 8.3% year-over-year increase, rebounding from negative growth the previous year and a modest 1.7% growth in Q1 2024. Within the industry, manufacturing posted a moderate growth of 3.8%, indicating that the extractive sector experienced significantly higher growth. This surge is attributed to increased exports of metals and minerals.
The IT & Communication sector experienced a 4.2% yoy growth, recovering from the subdued 0.8% growth in the first quarter. Professional activities, which have become a vital sector for the youth, expanded by 3.6% yoy. Both, Trade and Entertainment sectors grew by 3.2% yoy, likely influenced by the tourism industry. Importantly, the Trade sector, which holds significant weight in the GDP, rebounded from a minimal 1.1% growth in Q1, while Entertainment saw a slight increase.
Financial & insurance activities and Public administration, defense, health, education, and social work sectors posted modest increases of 2.2% and 1.7% yoy, respectively. Public administration has recovered from negative growth in the previous quarter, while financial activity decelerated from a 6.0% growth rate. The Real Estate sector remains subdued with a 0.4% year-over-year growth, signalling a stagnant period despite historically strong investments from the diaspora. This aligns with the weak expansion of the construction sector, which registered a modest 1.2% yoy growth. Additionally, agriculture remains relatively weak at 2.1% yoy growth, although it represents an improvement from the negative rates observed the previous year.
Domestic Demand Fuels Kosovo’s Q2 2024 Economic Expansion Amid Import Surge
From the expenditure point of view, real GDP growth is driven by a surge in domestic demand. Thus, household consumption – the major component in GDP - with an annual growth of 7.0% in Q2 2024 gave a 6.1 percentage points contribution in the real GDP growth. A notable support of the high consumption of households is the substantial expansion of the household loans, which signed 19.4% yoy in Q2 2024. While diaspora remittances have posted a subdued growth rate in the first half of 2024 (only 0.4% yoy), it still is an important source of household consumption.
While higher public sector expenditures were anticipated for 2024, government expenditures in the second quarter grew moderately by 4.8% compared to the same period the previous year, suggesting that more significant spending is likely deferred to the second half of the year.
Capital formation and net exports contributed negatively to real GDP in Q2 2024, with declines of 0.3 percentage points and 2.1 percentage points, respectively. The minor negative impact of capital formation is also observed in the minimal growth of the construction sector and lower capital expenditures compared to the same quarter in 2023.
Net exports remained in negative territory despite a 7.8% year-over-year increase in exports of goods and services. This is due to an equivalent 7.8% year-over-year growth in imports, which are significantly higher than exports. The rise in imports reflects higher domestic demand for foreign goods and services.
Conclusion
Kosovo’s economy has demonstrated exceptional performance in 2024, with robust growth observed across various sectors in the first half of the year. Driven by substantial household consumption, supported by strong loan growth the nation’s GDP growth in Q2 2024 reached an impressive 4.3% year-over-year. Despite some negative contributions from capital formation and net exports, the overall economic landscape remains positive. Noteworthy, revisions to 2023 GDP data have further solidified this upward trajectory. Given these encouraging trends and a positive outlook for the remainder of the year, we have revised our GDP growth forecast for 2024 from 3.9% to 4.7%. This forecast underscores Kosovo’s economic vitality, bolstered by strong domestic demand, increased investments, and a thriving industrial sector.
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Fjorent RRUSHI
Albania Fjorent is the head of ALM & Research for Raiffeisen Bank Albania. After a MSc in International Business from the University of Trieste and an MBA from MIB School of Management in Italy he started as an Investor Relations financial analyst at the aerospace & defense company Leonardo in Rome. After that he moved to the Italian Stock Exchange in Milan promoting blue chip companies through roadshows with institutional investors and after the merger with London Stock Exchange was in charge of primary markets of potential to be listed companies in Eastern Europe. In 2011 moved back to his native country to join Raiffeisen Bank in ALM & Research team in charge of fund transfer pricing, liquidity management and IRRBB. After a period at Intesa Sanpaolo Bank Albania as Head of pricing starting from 2021 he is heading the ALM & Research of Raiffeisen Bank Albania. Apart from macroeconomic analysis of particular interest for him is the disruptive technological transformation impacting the banking system. Fjorent’s hobby is football and he enjoys theatre and has been an amateur player as a teenager.
Valbona GJEKA
Albania Valbona is a financial analyst in Raiffeisen Bank Albania and looks back on more than 15 years of analytical experience in the bank. As now, she is the responsible for macroeconomic research for Albania and Kosovo market and covers developments of the foreign currency in the local market. Prior to that, she worked in National Institute of Statistics as methodology specialist. She holds a diploma in Mathematics and a master’s degree in Marketing from Tirana University. She enjoys traveling, artistic activities and volunteering.
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