financial stability report - Banka Qendrore e Republikës së Kosovës

Financial Stability Report
Number 3
4. The Economy of Kosovo
Kosovo’s economy continues to be
one of the economies with the
highest growth rate in the region,
though the growth rate in 2012 is
expected to be lower than in the
previous year. The main financing
sources for the economic activity
during the first half of the year
have shown weaker performance,
thus contributing to the slowdown
of the economic growth (Figure 11).
In this context, the deterioration of
the performance of the global
economy led to a decline of exports,
Figure 11. Macroeconomic map
GDP in eurozone
(change in %)
Inflation in eurozone
foreign direct investments and remittances. Private sector activity continued to be
supported by loans of the banking system, which also were characterized by a slower
growth rate. On the other hand, the public sector continues to be the main driver of the
economic activity through public expenditures, especially capital outlays, which are
continuously recording positive growth rate.
As a result of the high level of imports of goods from abroad, Kosovo’s economy continues to
be characterized by a high trade deficit, which represents the main cause of the high
current account deficit in the country. The decline of exports and the continuous growth of
imports made the current account deficit continue growing in 2012. Kosovo’s economy this
year is facing lower inflationary pressures compared to the previous year. Inflation in
Kosovo has been highly volatile during the recent years, largely reflecting price
developments in external markets, a correlation that derives from the heavy reliance of the
country’s economy on imported goods from abroad. Despite the problems in the external
sector, Kosovo’s economy continues to have fiscal sustainability. This fiscal sustainability is
explained by the low level of public debt (5.8 percent of GDP in June 2012), and budget
balance, which until June 2012 was characterized by surplus (0.5 percent of GDP).
Inflation
GDP in Kosovo
(change in %)
20
15
10
5
0
-5
Current account deficit
/GDP
Exports/GDP
FDI/GDP
Government
expenditures (change
Loans (change in %)
in %)
Remitances/GDP
2011 2012(p)
4.1. Real Sector
4.1.1. Gross Domestic Product
Economic developments in the first six months of 2012 suggest that the economic activity in
Kosovo is continuously expanding but at a slower pace compared to the previous year. The
slowdown of economic activity is mainly driven by the external sector developments, which
are adversely affecting the level of exports, foreign direct investments and remittances.
Also, the slowdown in the credit growth of the banking sector is contributing to the
slowdown of consumption growth and private sector investments. The continuous
expansion of public expenditures represents an important contributor to the expansion of
economic activity in the country. The real economic growth rate in 2012 is projected to be
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