Kosovo’s real GDP growth remained robust in 2024, averaging 4.4%, supported by declining inflation and higher wages. Private consumption continued to sustain growth, alongside a pickup in gross capital formation. Exports of goods and services continued to increase. On the supply side, manufacturing and construction activity growth remained strong. Consumer inflation averaged 1.6% in 2024. Yet domestic price pressures continued to persist, as reflected in the increase in the production and construction cost index during 2024. Formal employment increased by 2.4% between January and September 2024. The current account deficit increased, reaching 9% of GDP in 2024, driven by a deterioration of the goods balance. Remittances inflow growth was modest (1.4%), reflecting weaker activity in origin countries. Robust tax revenue growth (9.3%), particularly from indirect taxes (10.6%), combined with rising but still under-executed capital expenditures (16.7%), contributed to this outcome. The financial sector remains stable and financial deepening continues. In 2024, the average (year-on-year) increase of new loans was 22%. Bank asset quality remains satisfactory, with non-performing loans remaining stable at 2% by September 2024.
GDP growth is expected to reach 3.8% in 2025 and 2026, driven by consumption and investment activity. Higher wages, credit growth, and a high level of public transfers are expected to support consumption. An increase in social spending and wages, and increased execution of public investment, is expected to drive the fiscal deficit to 1% of GDP in 2025.
Kosovo has a lower elasticity of poverty reduction in response to economic growth compared to its peers. Therefore, further progress in reducing poverty will depend on the ability to sustain higher growth rates in the future.
Expanding childcare services would improve labor market opportunities for women and enhance children's school readiness through better early childhood education, while also creating additional jobs.
